Macro and Politics

* The Treasury will hold a 1.5-year gold-denominated bond and a gold-denominated lease certificate today and finalize its domestic borrowing program for the month. The Treasury borrowed TL80bn via yesterday’s 2y fixed coupon and 5y CPI-linked bond auctions, including non-competitive sales amounting to TL44.4bn. For the fixed coupon auction, the bid-to-cover ratio was 2.68x, indicating robust demand, and the average cost of borrowing was 36.05%. For the CPI-indexed auction, the bid-to-cover ratio remained low at 1.44x and real compounded yield was 5.37%. Accordingly, the Treasury’s domestic borrowing total for the month has reached TL309.4bn. 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. Having already raised TL309.4bn since the beginning of the month, the Treasury is likely to raise approximately TL216bn in today’s direct sales.

* The CBT will release the Residential Property Price Index (RPPI) for January @ 10:00 local time. The Residential Property Price Index (RPPI) increased by 0.2% m/m and 29% y/y in December, reaching 204.5, while house prices recorded a 1.4% annual decline in real terms. As a reminder, the RPPI had posted a 0.2% y/y real increase in November, marking the first return to positive real territory since January 2024. As of December, however, the annual real rate of change has once again turned negative, pointing to the sharpest real contraction observed over the past six months. We expect real house price growth to remain subdued in the near term, reflecting the weakening momentum in housing demand during the final quarter of 2025.

* The central government budget recorded a deficit of TL214.5bn in January, while the primary balance posted a surplus of TL241.8bn. Accordingly, the 12-month cumulative budget deficit widened marginally from TL1.8tn to TL1.87tn, whereas the rolling primary surplus increased markedly from TL255.3bn to TL473.4bn. Please recall that the Treasury cash balance registered a deficit of TL246.2bn in January, alongside a primary surplus of TL207.5bn. As such, the accrual-based budget deficit came in roughly TL32bn lower than the cash deficit in the first month of the year, indicating that the divergence between accrual and cash-based fiscal balances, albeit narrowing, remains in place. While the January outturn points to a relatively solid primary performance at the start of the year, the sustainability of fiscal discipline will hinge on the trajectory of expenditure dynamics going forward. Looking at the details, budget revenues rose by 55% y/y in January. With annual CPI inflation at 30.7% over the same period, revenue growth outpacing inflation suggests that fiscal performance remains anchored in real terms. Central government expenditure rose by 55% y/y to TL1.6tn in January, implying that 8.6% of the TL19tn expenditure envelope projected for 2026 has already been absorbed. We forecast a 2026 budget deficit of TL2.8tn (3.4% of GDP). The current configuration suggests that the fiscal stance reflects temporary improvements in expenditure composition rather than a structural tightening in underlying fiscal dynamics.