Macro and Politics

* The CBT will release the results of the January Market Participants’ Expectations Survey today @ 10:00 local time. According to the CBT’s latest Market Participants Survey for December 2025, participants revised their 2025 year-end CPI expectation down to 31.2% from 32.2%, while the 2026 year-end CPI forecast edged slightly higher to 23.4% from 23.2%. In addition, the 24-month-ahead CPI expectation declined to 17.5% from 17.7%, whereas the five-year-ahead annual CPI expectation remained anchored at 11.4%. Today’s January survey results, particularly expectations for January m/m CPI will be closely monitored. Given the strong momentum we observe in food prices, alongside year-end price adjustments and the impact of administered and regulated price and tax revisions, we see scope for the January survey to reflect an around 4% m/m CPI increase.

* The central government budget posted a deficit of TL528.1bn in December, while the primary balance recorded a deficit of TL411.5bn. As a result, the 2025 full-year budget deficit amounted to TL1.8tn, coming in below the TL2.2tn deficit projected in the 2026–2028 Medium-Term Program (MTP). In contrast, the primary balance posted a TL255.2bn surplus over the course of 2025. The budget deficit undershooting the MTP target was largely driven by budget revenues outperforming projections, while the expenditure side continues to offer no clear signal of broad-based and durable fiscal tightening. Budget revenues rose by 44% y/y in December. Given that headline CPI inflation stood at 30.9% y/y over the same period, this points to a real increase in revenues. On a full-year basis, 2025 budget revenues reached TL12.8tn, exceeding the TL12.5tn revenue target set out in the MTP. On the expenditure front, central government spending increased by a modest 5% y/y in December to TL1.8tn. For 2025, total budget expenditures reached TL14.6tn, broadly in line with the TL14.7tn envisaged under the MTP. Primary expenditures rose by 2.5% y/y in December to TL1.7tn, while full-year primary spending stood at TL12.6tn, fully consistent with the program targets. Looking ahead, we expect the 2026 budget deficit to reach TL2.8tn, corresponding to 3.4% of GDP. The current fiscal outlook points to temporary improvements driven by expenditure composition, rather than a structural tightening in the fiscal stance. In this context, the trajectory of current expenditures and capital spending will remain the key risk areas for the durability of fiscal discipline in the period ahead.

* Foreign investors recorded net purchases of USD237.6m in the equity and USD864.8m in in the bond market (excluding repo transactions) during the week of January 2 – 9. As a result, the foreign share in total bond stock edged up from 7.5% to 7.7%, marking its highest level since March 2025. Foreign inflows into the equity market extended into a sixth consecutive week, with cumulative net equity purchases approaching USD1.2bn over this period. In the bond market, foreign interest has remained notably steady since early November, with cumulative foreign inflows surpassing USD3bn since the week of November 7, when inflows began to gain clearer traction. Amid continued rate cuts throughout 2026 and a gradual normalization in political risk perceptions, we expect foreign interest through standard portfolio channels to remain supportive. During the same period, the residents’ FX deposits retreated by USD1.77bn (excluding gold, EUR/USD parity effect adjusted), while their total FX deposits (including gold, price adjusted) eased by USD520mn. In terms of official reserves, the CBT’s gross FX reserves rose by USD7bn to USD196.1bn, net international reserves increased by USD6bn to USD82.8bn and net reserves excluding swaps climbed by USD7.5bn to USD70bn.