Macro and Politics

*The Treasury will hold a 7-month zero coupon bond auction today. According to the Treasury’s three-month domestic borrowing program covering the period of November 2025 – January 2026, it plans to borrow a total of TL128.3bn from domestic markets against its redemption of TL95bn this month, implying a rollover ratio of 135%. The November borrowing program will begin today with the auction of a 7-month zero-coupon bond. This will be followed by 2-year and 5-year fixed-coupon bond auctions tomorrow. In the following week, the Treasury will hold a direct sale of a two-year TLREFK-indexed lease certificate on November 18 and will complete the month’s borrowing program with the direct sales of a 2-year USD-denominated bond and a 2-year USD-denominated lease certificate on November 20.

* TURKSTAT will release September Industrial Production (IP) figures today @ 10:00 local time. Foreign trade figures serve as a key leading indicator for our IP forecasts. In September, intermediate goods imports (excluding gold and energy) rose by 13.6% m/m and 7.1% y/y. Another important leading indicator, the Istanbul Chamber of Industry (ICI) Turkey Manufacturing PMI, declined from 47.3 in August to 46.7 in September. Accordingly, the manufacturing PMI, which averaged 47.06 in the second quarter, fell to an average of 46.63 in the third quarter. Accordingly, we expect seasonally adjusted industrial production to enter contraction territory in September, while calendar-adjusted output is likely to see a deceleration in y/y growth, remaining in positive territory. Please recall that the sequential (the seasonally and calendar adjusted monthly figure) IP rose by 0.4%, while calendar-adjusted IP increased by 7.1% y/y back in August.

* In the 4^th Quarterly Inflation Report presentation delivered by the CBT Governor Fatih Karahan, the year-end inflation forecast range for 2025 was revised upward from 25–29% to 31–33%. The 2026 forecast range, which stands at 13–19%, remained unchanged. Interim targets were also maintained at 24% for 2025, 16% for 2026, and 9% for 2027. Governor Karahan stated that, in forming the baseline assumptions underlying the projections, the Bank revised its oil price assumptions downward amid weakening global growth and higher supply, while revising upward its TL-denominated import price assumptions due to rising precious and industrial metal prices. Despite the lower oil price assumption, the increase in import prices pushed inflation forecasts higher, while adverse weather-related supply developments also prompted an upward revision in food price assumptions. Karahan noted that although demand conditions remain broadly disinflationary, the output gap materializing above expectations and the slower-than-anticipated decline in underlying inflation contributed to the upward revision in the 2025 forecast. He added that the Bank envisions a tighter policy path compared with the previous projection round and that, for 2026, the impact of higher food and import price assumptions is expected to be offset by the anticipated slowdown in domestic demand and an improvement in inflation expectations. Our house forecast stands at 31.5% for end-2025 CPI and 23% for end-2026. We expect the monthly CPI increase to fall below 2% in November and to come in around 1% in December. The November inflation print will be a key determinant for the December MPC decision. Our baseline scenario assumes that the MPC will proceed with a 100bps rate cut in December, bringing the policy rate to 38.5% by year-end.