Macro and Politics

* TURKSTAT will release January inflation data today @ 10:00 local time. We expect a notable acceleration in monthly inflation, primarily driven by food prices. Accordingly, we forecast headline CPI inflation to print at 4.13% m/m, with seasonally adjusted monthly CPI at 2.3%. An outcome in line with our forecast would bring annual CPI down from 30.9% to 29.8%, reflecting favorable base effects despite strong monthly momentum. The market median forecast is close to our view, at 4.2% m/m and 29.9% y/y. Price adjustments we have been tracking following the raw milk price hike, together with persistently high prices in fresh fruit and vegetables, suggest that food inflation is likely to remain elevated in February as well. We assess that disinflation will proceed at a slower pace during the first half of the year, with annual CPI easing to 28.9% by end-Q1 2026 and to around 27% by end-Q2 2026. A more pronounced decline should materialize mainly in the second half, and we continue to expect year-end 2026 inflation at 23%. In this context, after falling from above 40% to below 31% in 2025, we believe inflation will follow a more gradual path in 2026 as it transitions from the low-30s into the 20s.

* The Treasury will start its February domestic borrowing program today with direct sales of a 1y USD-denominated bond and 1y USD-denominated lease certificates. According to the Treasury’s domestic borrowing strategy for the February–April 2026 period, the Treasury projects domestic borrowing of TL525.3bn against redemptions totaling TL656.6bn in February. The program also points to a similar stance in March and April, with planned borrowing remaining below redemption amounts. Following today’s direct sales, the Treasury is scheduled to hold auctions of a 4y TLREF-indexed bond and a 5y fixed-coupon bond on 9 February, an 11-month Treasury bill auction and a 5y lease certificate direct sale on 10 February, a 2y fixed-coupon and a 5y CPI-indexed bond auction on 16 February, and direct sales of a 1.5y gold bond and a gold-backed lease certificate on 17 February.

* The Istanbul Chamber of Industry (ICI) Turkey Manufacturing PMI declined from 48.9 to 48.1 in January. Remaining below the 50-threshold since April 2024, the index continues to signal a contractionary backdrop in the manufacturing sector. That said, the partial recovery observed in recent months—from the mid-46 range toward levels above 48 - suggests that the pace of deterioration in industrial activity has begun to moderate. In its accompanying note, the ICI emphasized that Turkish manufacturers continued to face challenging operating conditions at the start of the year, highlighting weak demand dynamics alongside declines in both new orders and output. Persistently subdued order flows have led firms to scale back production, employment, and purchasing activity, while both input costs and output prices recorded sharp increases, with inflation rates in both categories reaching their highest levels since April 2024. We expect growth to come in at 3.8% in 2025, accelerating modestly to around 4% in 2026. Despite the strong annual gains observed in industrial production, the expansion appears increasingly concentrated in a limited set of sectors - most notably construction-related segments and defense - rather than broad-based across manufacturing. This suggests that industry-driven growth continues to rely on a narrow sectoral base. Leading indicators and confidence surveys confirm that sectoral divergence within the growth composition remains in place, even as domestic demand and public-supported growth momentum appear to be holding up.