Macro and Politics

* TURKSTAT will release the March inflation figures today @ 10:00 local time. We expect monthly CPI inflation to come in at 2.1% in March, while the market median stands slightly above our house forecast at 2.3%. A realization in line wbith our forecast would imply a modest easing in annual CPI to 31.1% from 31.5%. Despite the sharp increase in global energy prices following the US – Iran conflict, the impact of fuel price adjustments on March inflation remained contained, supported by the 75% échelle mobile mechanism. However, as the mechanism approaches its effective limits and oil prices remain above USD100/bbl, energy pass-through is likely to become more pronounced in April. In addition, rising energy costs are also expected to exert upward pressure on the overall price level through the producer price channel. We also see mounting risks to food inflation stemming from higher input costs, especially driven by urea prices. Taken together, these dynamics point to a material upward revision risk to our year-end inflation forecast, with heaadline CPI likely to move toward around 26% for 2026YE, compared to our previous estimate of 23%.

* Foreign investors were net buyers in equities, albeit modestly, with inflows of USD137.1mn in the week of March 20 – 27, while continuing to unwind positions in the bond market, recording USD1.4bn in net outflows (excluding repo transactions). Following three consecutive weeks of net selling in equities since the onset of the US – Iran conflict in the week of February 27 – March 6, foreign investors appear to have returned to the equity market, though the recovery in flows appears tentative. In contrast, outflows from the bond market extended into a sixth consecutive week, bringing cumulative outflows (excluding repos) to USD7.3bn over this period. The foreign share in the total government bond stock declined to 6.1% from 6.7% over the same week. On a rolling 12-month basis, cumulative data point to USD3.7bn in net foreign inflows into equities and a limited USD697mn inflow into bonds (excluding repos). YTD, foreign investors have recorded USD1.3bn in net equity inflows, while bond markets have seen cumulative outflows of USD1.5bn (excluding repos). Moreover, the residents’ FX deposits (excluding gold, EUR/USD parity effect adjusted) declined by USD178mn, while their total FX deposits of residents, including gold and adjusted for price effects, increased by USD2.2bn during the week. Lastly, the CBT’s gross FX reserves declined by USD22.1bn to USD155.4bn, while net FX reserves fell by USD22.3bn to USD35bn over the same period. The gold component of gross reserves decreased from USD116.2bn to USD100bn. Meanwhile, the swap stock increased by USD479mn to USD14.9bn, while the net reserves excluding swaps dropped by USD22.8bn to USD20.1bn.