Macro and Politics

*The CBT will release January Balance of Payment figures today @10:00 local time. We expect the current account to post a USD6.5bn deficit in January. We forecast the balance-of-payments-defined foreign trade deficit to narrow modestly to USD7.3bn, while the services balance surplus is likely to come in at around USD2.7bn. In light of the surge in energy prices following the US – Iran tensions, we revise our year-end current account deficit forecast to USD36bn (2.1% of GDP), from USD30bn (1.7% of GDP). That said, upside risks to our forecast remain in place. Elevated volatility in oil prices amid ongoing geopolitical developments continues to cloud the outlook for the energy import bill. Should oil prices remain around current levels, we expect upward pressure on the current account deficit through the energy import channel to intensify.

*The Monetary Policy Committee (MPC) decision will be announced today @ 14:00 local time. We expect the CBT to keep the policy rate unchanged at 37%, broadly in line with market expectations. Amid heightened uncertainty and volatility in global markets following the US – Iran tensions, the CBT’s suspension of weekly repo auctions has pushed the weighted average funding cost (WAFC) to the upper bound of the interest rate corridor at 40%. Following an effective tightening of around 300 basis points since last week, we expect the MPC to leave the policy rate unchanged at 37% at today’s meeting. Markets will closely monitor the accompanying statement for the CBT’s assessment of rising oil prices and the implications of the US – Iran tensions. Should geopolitical risks ease, we expect the CBT to resume weekly repo auctions, allowing market rates to gradually converge toward the policy rate (37%). If geopolitical risks ease, the CBT could resume its easing cycle from the April 22 meeting. However, uncertainty around the persistence of geopolitical tensions and their potential impact on energy prices continues to limit room for policy easing. Should risks intensify, additional tightening steps by the CBT cannot be ruled out. Our year-end policy rate forecast stands at 29.5%.

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the period of February 27 – March 6 @ 14:30 local time. Our calculations based on the CBT’s analytical balance sheet suggest that gross FX reserves fell by USD12.7bn in the week of 27 February – 6 March, bringing the total down to USD197.7bn. Amid a pronounced deterioration in risk appetite toward emerging markets following the escalation of US–Iran tensions, we estimate that the CBT’s net FX position also declined by USD13.3bn over the same period, reflecting efforts to contain potential depreciation pressures on the Turkish lira. To recall the previous week’s data: Foreign investors were net buyers of equities, albeit modestly, to the tune of USD65.3mn in the week of February 20 – 27, while recording net sales of USD212.8mn in the bond market (excluding repo transactions). As a result, the foreign share in the total government bond stock declined from 9% to 8.9%. Within the mentioned week, the residents’ FX deposits increased by USD1.1bn (excluding gold, EUR/USD parity effect adjusted), while their total FX deposits (including gold, price adjusted) soared by USD2.1bn. In terms of official reserves, the CBT’s gross FX reserves rose by USD4.2bn to USD210.4bn, net international reserves increased by USD2.6bn to USD91.6bn and net reserves excluding swaps climbed by USD3.2bn to USD78.7bn.