Macro and Politics

* The Treasury will hold 5y fixed coupon bond auction as well as the direct sale of 2y lease certificate today. The Treasury tapped the domestic markets to the tune of TL77.8bn (including non-competitive sales) via yesterday’s 12m G-bond and 4y FRN bond auctions. The FRN auction drew exceptionally strong demand, with a bid-to-cover ratio of 8.06x and a term rate of 19.49%. In the 12m G-bond auction, the bid-to-cover ratio stood at 2.27x, while the average cost of borrowing came in at 36.64%. Following this week’s auctions and direct sale, the Treasury will proceed with 2y fixed-coupon and 5y CPI-indexed bond auctions on January 12, followed by 4y TLREF-indexed and 10y fixed-coupon bond auctions on January 13. The January domestic borrowing program will be completed on January 26, with direct sales of a 1y gold-denominated bond and a 1y gold-denominated lease certificate. According to the Treasury’s Jan - Mar 2026 domestic borrowing strategy, total redemptions of TL613.3bn scheduled for January are set to be met through three direct sales and seven auctions, with planned domestic borrowing amounting to TL487.7bn, implying a targeted rollover ratio of 80%.

*The CBT will release December Real Effective Exchange Rate (REER) today @14:30 local time. Considering the inflation realizations and the average Basket/TRY change for December, we expect the REER to decrease from 71.79 to 71.2, implying a 0.8% real depreciation of the Turkish lira.

* TURSTAT will release December seasonally adjusted CPI and special CPI aggregates today @16:00 local time. Based on our calculations, we forecast the seasonally adjusted (SA) monthly CPI change for December to be approximately 1.7%. We expect a similar outcome in today’s adjusted figures.

* The CBT will release the Monthly Price Developments report for December today @18:00 local time. The report is a technical one and does not contain a policy message. Still, the assessment of trend core inflation will be monitored closely. 

* Monthly CPI rose by 0.89% in December, slightly above our house forecast of 0.8% and marginally below the market median expectation of around 1%. Accordingly, annual CPI retreated from 31.1% to 30.9%. Meanwhile, PPI increased by 0.75% m/m, lifting annual PPI inflation from 27.2% to 27.7%. We expect monthly CPI inflation in January to materialize at around 3.5%. Given that monthly inflation reached a notably elevated 5% in the same period last year, base effects point to a pullback in annual inflation toward the 29% level. However, as the month has only just begun, our January inflation outlook remains highly sensitive to developments in administered prices, tax adjustments, and food prices. Accordingly, our January CPI forecast remains subject to revision in the coming weeks, conditional on incoming price dynamics across these components. Looking beyond the near term, following the improvement achieved in the initial phase of disinflation, sticky price dynamics in high-inertia items such as food and housing, together with persistent rigidity in services inflation, point to a more gradual disinflation path. Within this framework, we expect annual CPI inflation to settle at around 23% by end-2026.