Macro and Politics

* The CBT will release the Residential Property Price Index (RPPI) for February @ 10:00 local time. The RPPI increased by 3.7% m/m and 27.7% y/y in January, rising to 211.8. Yet, in real terms, the index declined by 2.3% y/y. While the annual real change had briefly turned positive in November - registering a 0.2% increase for the first time since January 2024- it reverted to negative territory in December. The January reading indicates that the real weakness in residential property prices has persisted. Meanwhile, the Central Bank introduced the New Tenant Rent Index (NTRI), constructed using rental valuation data obtained from bank appraisal reports that are also employed in the calculation of the RPPI. The “Actual Rent Paid by Tenant Index” published by TURKSTAT under the CPI framework tracks rents for the same dwelling over time and, by construction, reflects new rental price dynamics with a lag. As such, the existing official series has limited capacity to capture contemporaneous developments in the rental market. The NTRI and province-level unit rent data began to be published alongside the RPPI as of yesterday. The NTRI rose by 3.5% m/m and 34.2% y/y in January, reaching 293.6, and recorded a real annual increase of 2.7%. This divergence suggests that, despite relatively subdued housing demand, pricing pressures in the rental segment remain elevated, implying that rent inflation may accompany the broader disinflation process with a lag and exhibit greater persistence.

* The Treasury will hold a 2y fixed coupon bond and a 4yr TLREF-indexed bond, alongside direct sales of a 2y gold-denominated bond and a gold-denominated lease certificate today and finalize its domestic borrowing program for March. The Treasury tapped the domestic markets to the tune of TL26.8bn via yesterday’s 5y and 8y fixed-coupon bond auctions, including non-competitive sales amounting to TL10.5bn. Demand for the 5y bond remained relatively muted, with a bid-to-cover ratio of 1.53x, while the average compounded yield came in at 36.69%. By contrast, the 8y auction saw strong demand, with the bid-to-cover ratio reaching 6.35x, and the average compounded yield realized at 33.43%. With yesterday’s double auctions, the Treasury’s total domestic borrowing since the beginning of the month increased to TL119.4bn. According to the March – May 2026 domestic borrowing strategy, the Treasury plans to borrow a total of TL315.5bn from the domestic market in March against redemptions of TL394.3bn, implying a rollover ratio of approximately 80%. Having already raised TL119.4bn since the beginning of the month, the Treasury is likely to borrow roughly TL196bn through today’s double auctions and direct sales.

* The central government budget posted a surplus of TL24.4bn in February, while the primary balance recorded a surplus of TL208.1bn. As a result, the cumulative budget balance for the first two months of the year registered a deficit of TL190.2bn, while the 12-month rolling budget deficit narrowed from TL1.9tn to TL1.5tn. Over the same period, the primary balance recorded a cumulative surplus of TL450bn, with the 12-month rolling primary surplus increasing from TL473.4bn to TL851.8bn. Since the échelle mobile mechanism, which allows 75% of fuel price increases to be absorbed through adjustments in the special consumption tax (SCT), was introduced on 5 March, we estimate that the combined fiscal cost of the one price cut and five price hikes observed in fuel prices—taking into account both the foregone SCT revenues and the associated VAT impact—has reached approximately TL10bn. Our calculation is based on the portion of fuel price adjustments in gasoline and diesel absorbed by the budget under the échelle mobile mechanism, as well as assumptions regarding average daily fuel consumption. Recent price adjustments suggest that the remaining fiscal space available under the mechanism has narrowed significantly. Should Brent crude prices remain persistently above USD100 per barrel, the remaining tax buffer under the échelle mobile framework could be exhausted with the next price increase, implying that subsequent fuel price hikes would begin to be fully passed through to pump prices. If the mechanism were to absorb the entire remaining tax margin—corresponding to SCT ceilings of TL13.9 per liter for diesel and TL14.82 per liter for gasoline—we estimate that the daily fiscal cost of the scheme could reach approximately TL1.4bn, including the VAT effect. While the échelle mobile system helps contain the short-term inflationary pass-through of fuel price increases, a persistent energy shock would likely weigh on SCT revenues and therefore pose downside risks to the cash balance. Our house forecast for the 2026 central government budget deficit stands at TL2.8tn (3.4% of GDP).