Macro and Politics

* The Treasury and Finance Ministry will release November central government budget figures @ 11:00 local time. The Treasury’s cash balance posted a surplus of TL56.4bn in November, while the primary balance recorded a stronger surplus of TL173.9bn. The November cash balance figures serve as a leading indicator for the central government budget data to be released later today. Based on these cash balance developments, we estimate that the central government budget likely posted a surplus of around TL40bn in November. Our year-end 2025 budget deficit forecast stands at TL2.3tn (3.7% of GDP). Please recall that in the Medium-Term Program (MTEP) covering 2026 – 2028, the government revised its projections, raising the 2025 budget deficit-to-GDP ratio from 3.1% to 3.6%, and adjusting the 2026 estimate upward from 2.8% to 3.5%.

* The CBT’s December Market Participants’ Survey has been released. Accordingly, participants revised down their end-2025 CPI forecast to 31.2% from 32.2%, while the end-2026 CPI expectation edged slightly higher to 23.4% from 23.2%. In addition, the 24-month-ahead CPI expectation declined to 17.5% from 17.7%, while the five-year-ahead annual CPI expectation stood at 11.4%. Monthly inflation expectations point to 1.08% for December and 3.44% for January, with the February 2026 monthly CPI expectation at 2.0%. From our perspective, we expect the m/m CPI increase to remain below the 1% in December, at around 0.8%. Hence, we expect CPI inflation to end 2025 in the 30.5%–31% range, while our end-2026 CPI forecast stands at 23%. On the policy front, survey participants expect the policy rate to stand at 37% at the Monetary Policy Committee meeting scheduled for 22 January 2026, implying a 100bp rate cut in January. For the 12 March 2026 meeting, the policy rate expectation declines further to 35.6%, while the year-end 2026 policy rate forecast is 28.15%. We assess that stickiness in services inflation and core indicators continues to constrain the scope for rapid monetary easing. Under this outlook, we expect rate cuts to follow a gradual path, with the policy rate stabilizing at around 29.5% by end-2026.

* The current account posted a USD457mn surplus in October. As a result, the 12-month rolling current account deficit widened to USD22bn from USD20.3bn, while the cumulative deficit over Jan - Oct reached USD14.5bn. The current account balance excluding gold and energy (the core balance) recorded a USD7.0bn surplus in October, with the corresponding annual surplus easing slightly to USD46.0bn from USD46.5bn. The balance-of-payments-defined trade deficit increased to USD6.2bn in October from USD6.0bn in September. This compares with a significantly lower deficit of USD3.5bn in October 2024, pointing to a notable year-on-year deterioration. Gold imports rose to USD2.8bn from USD2.5bn, while gold exports declined sharply to USD94mn from USD172mn over the same period. On the services side, net services income edged down to USD7.6bn from USD7.7bn, driven primarily by a decline in net travel income, which fell to USD5.9bn from USD6.3bn. Net portfolio flows recorded an outflow of USD1bn in October, as foreign investors posted net sales of USD44mn in equities and USD98mn in the bond market. After posting surpluses for four consecutive months, we expect the current account balance to return to a deficit in the final two months of the year. Based on prevailing trends and leading foreign trade indicators, we expect the current account deficit to close 2025 at around USD20bn (1.3% of GDP). Our end-2026 current account deficit forecast stands at USD25bn (1.5% of GDP).