Macro and Politics

*The CBT will release January Real Effective Exchange Rate (REER) today @14:30 local time. Considering the inflation realizations and the average Basket/TRY change for January, we expect the REER to increase from 71.1 to 73.5, implying a 3.5% real appreciation of the Turkish lira.

* TURSTAT will release January 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 January to be approximately 2.7%. We expect a similar outcome in today’s adjusted figures.

* The CBT will release the Monthly Price Developments report for January 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.

* January CPI inflation surprised notably to the upside, with monthly headline inflation coming in at 4.84% m/m, well above both our house forecast at 4.13% and the market median expectation at 4.2%. As a result, annual CPI edged down only marginally, easing from 30.9% y/y to 30.7% y/y. Producer prices increased by 2.7% m/m in January, while annual PPI inflation declined slightly from 27.7% to 27.2%. Price pressures were most pronounced in healthcare (+14.9% m/m), followed by insurance and financial services (+10.8%), as well as education and food & non-alcoholic beverages (+6.6%). Following the upside surprise in January inflation, upside risks to our 23% year-end CPI forecast have increased. However, we maintain our baseline projection for now, as we continue to expect a slower pace of disinflation in the first half of the year, with a more pronounced decline materializing mainly in the second half. We also foresee policy rate cuts proceeding gradually, with the policy rate ending the year at 29.5%. Looking ahead, attention will turn to the CBT’s Q1 2026 Inflation Report presentation on 12 February. It’s worthnoting that the CBT previously maintained its 2026 year-end inflation forecast range of 13% – 19% and kept its interim target at 16%. While we expect the interim target to remain unchanged, a modest upward revision to the forecast range could come onto the agenda.