Macro and Politics

* The CBT Governor Karahan spoke yesterday in a live broadcast on “Monetary Policy and the Macroeconomic Outlook” outlining the Bank’s policy stance, the ongoing rebalancing in domestic demand, and the disinflation process. He noted that the more than USD80bn increase in gross reserves has largely reflected resident FX conversions and highlighted the sharp decline in FX-protected deposits (KKM). Reaffirming price stability as the CBT’s core mandate, Karahan reiterated the goal of bringing inflation to single digits and stabilizing it around 5%. Karahan stated that demand conditions have become more moderate, with weaker consumer-goods imports and a flat services trend pointing to a rebalancing consistent with disinflation. On the debate around “perceived inflation,” he emphasized the strong influence of food and rent on household perceptions and noted that rigidities in rental inflation have begun to ease. While service inflation has moderated significantly, he added that components indexed to past inflation are adjusting more slowly. Regarding monetary transmission, Karahan stressed that market rates do not always move in line with the policy rate when expectations deteriorate, though recent steps have lowered funding costs and pushed loan and deposit rates down by roughly 10pp. He also reiterated that the CBT does not target any specific exchange-rate level and noted that the global rally in gold prices has created a sizeable domestic wealth effect—at times more influential on demand than rate moves. He added that the Bank aims to secure stronger support from inflation expectations going forward. Following the Governor’s remarks, attention now turns to the November CPI print due on Wednesday, 3 December. We continue to expect a 1.2% m/m increase, which would bring annual inflation down from 32.9% to 31.5%.

* TURKSTAT will release November Economic Confidence Index @ 10:00 local time. The Economic Confidence Index posted a modest 0.3% monthly increase in October, reaching 98.2, yet remaining below the 100 - threshold. Having stayed below this level since March, the index indicates that perceptions regarding the overall economic outlook remain on the pessimistic side. On a three-month moving average, the index edged up slightly from 97.4 to 98.0 in October. A closer look at the sub-components reveals a divergent trend across sectors. Accordingly, the consumer confidence index declined by 0.3% to 83.6, the services sector confidence index fell by 0.3% to 110.7, and the construction sector confidence index dropped by 5.3% to 83.7. In contrast, the real sector confidence index rose by 1.2% to 102.0, while the retail trade confidence index increased by 3.7% to 113.2.

* TURKSTAT will release October foreign trade figures @ 10:00 local time. The Ministry of Trade’s preliminary figures for October point to a widening in the foreign trade deficit. According to the preliminary data, exports rose by 2.3% y/y to USD24bn, while imports increased by 6.6% y/y to USD31.4bn. Based on these early readings, we observe that the foreign trade deficit expanded from USD6.9bn in September to USD7.4bn in October, with the 12-month cumulative deficit edging up from USD89.2bn to USD90.6bn. Within the framework of the preliminary figures, we expect the current account to post a surplus of around USD1bn in October. Looking ahead, we estimate the current account deficit at around USD18bn (1.1% of GDP) by end-2025 and USD25bn (1.5% of GDP) by end-2026.

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the period of November 14 – 21 @ 14:30 local time. During the week of 7–14 November, foreign investors were net sellers of USD158.8mn in the equity market, while recording a net purchase of USD499.8mn in the bond market (excluding repo transactions). This marked the third consecutive week of inflows into the bond market, bringing the three-week cumulative total to USD1.2bn. Meanwhile, the foreign share in the total government bond stock remained unchanged at 6.8% during the same period. Within the same period, the residents’ FX deposits edged up by a mere USD46mn (excluding gold, EUR/USD parity effect adjusted), while their total FX deposits (including gold, price adjusted) climbed by USD742mn. In terms of official reserves, the CBT’s gross FX reserves increased by USD2.4bn to USD187.5bn, net international reserves dropped by USD1.1bn to USD72bn and net reserves excluding swaps decreased by USD517mn to USD57.6bn.