Macro and Politics

*Credit rating agencies Fitch and Moody’s are scheduled to release Türkiye’s sovereign rating review today. It’s important to note that these calendars are only reference points and do not guarantee that the agencies will conduct a review or make a new rating decision. Any potential announcement would be expected after market close. At its latest July 25 review, Moody’s upgraded Türkiye’s sovereign credit rating to “Ba3” from “B1”, while revising the outlook from “positive” to “stable”. On the same date, Fitch concluded its review without any changes, affirming Türkiye’s Long-Term Foreign Currency Issuer Default Rating (IDR) at “BB-“ with a “stable” outlook. In its July assessment, Moody’s highlighted Türkiye’s continued vulnerability to large-scale balance-of-payments shocks. Fitch, in reaffirming the stable outlook, cited Türkiye’s history of high inflation, political interference in monetary policy, limited external liquidity relative to its sizeable financing needs, and weaker governance indicators compared with peer economies. As Türkiye’s exposure to balance-of-payments shocks has diminished, reserve accumulation has strengthened, and a tight monetary policy stance has been maintained, we assess that both agencies could revise the outlook from “stable” to “positive” in today’s reviews. That said, we do not expect either Moody’s or Fitch to implement a rating upgrade at this stage.

* The Monetary Policy Committee (MPC) lowered the policy rate by 100bp to 37%, undershooting market expectations of a 150bp cut to 36.5%. While our baseline scenario had also envisaged a 150bp reduction, we had flagged the risk of a more cautious 100bp move. In light of the prospect of a strong January inflation print and upcoming changes to CPI weights in February, the CBT appears to have opted for a slower pace of easing, signaling a more cautious policy stance. The January MPC statement highlighted rising uncertainty on both the inflation and demand fronts, reinforcing this more tightly managed approach to rate cuts. Early signals from the data we monitor point to a January monthly inflation print of around 4.1%, implying a moderation in annual CPI from 30.9% to 29.8%. We expect the disinflation process to remain gradual in the first half of the year, with headline inflation easing to around 28.9% by the end of the first quarter and 27% by the end of the second quarter, before a more pronounced decline materializes in the second half, bringing year-end 2026 inflation to around 23%. With the next MPC meeting scheduled for 12 March, the roughly 200bp decline in headline inflation we project for the first quarter supports the case for another cautious rate cut at that meeting. Under this outlook, our year-end 2026 policy rate forecast stands at 29.5%.