Macro and Politics

* The real effective exchange rate (REER) declined broadly in line with our house expectation in December, falling to 71.1 and implying nearly 1% real depreciation. The decline was primarily driven by the nominal exchange rate increasing at a faster pace than consumer price inflation. As a result, the Turkish lira recorded a second consecutive month of real depreciation against its equally weighted currency basket.

* The Treasury tapped the domestic markets to the tune of TL71.2bn via yesterday’s 5y fixed coupon bond auction, while also sold TL18.9bn at the direct sale of 2y lease certificate. Accordingly, having raised a total of TL90.1bn through yesterday’s auction and direct sale, the Treasury’s cumulative domestic borrowing for the month has reached TL167.9bn. 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%.