Macro and Politics

* The credit rating agency S&P affirmed Türkiye’s sovereign ratings at BB-/B with a stable outlook. The agency assesses that, provided the current policy mix is maintained, the economy should be able to navigate the ongoing energy price shock, emphasizing that tight monetary policy and discipline in wage-setting remain critical. S&P’s baseline assumes a gradual easing of geopolitical tensions in the Middle East alongside a moderation in energy prices, under which the macro impact is expected to remain contained. That said, a more prolonged period of elevated energy prices is flagged as the key downside risk to the outlook. The agency notes that a sustained rebuild in reserves, a durable improvement in confidence in the Turkish lira, and further progress in disinflation could pave the way for an upgrade. On the macro front, S&P projects 2026 growth at 3.4%, while revising its average inflation forecast upward to 29.3% from 23.4%. The current account deficit is expected to widen to 3.1% of GDP (c. USD50bn) in 2026, driven by higher energy imports and softer tourism revenues. The fiscal deficit is projected to increase to 3.5% of GDP, while public debt is expected to remain low relative to GDP. The banking sector is seen as maintaining strong capital and liquidity buffers; however, S&P cautions that a prolonged energy shock, particularly if accompanied by continued currency depreciation, could weigh on the sector. Credit growth is expected to moderate in 2026 amid tighter financial conditions. Turkey’s next sovereign rating review is scheduled for July 17 by Fitch.

* The CBT’s April 2026 Market Participants Survey has been released. Accordingly, participants revised their year-end CPI forecasts higher, with the 2026 projection rising from 25.4% to 27.5% and the 2027 projection from 18.7% to 20.1%. The 12-month ahead CPI expectation increased from 22.2% to 23.4%, while the 24-month ahead forecast edged up from 17.3% to 18.0%, and the 5-year ahead expectation rose from 11.6% to 11.9%.Participants’ monthly CPI expectations stand at 2.9% for April and 1.8% and 1.5% for May and June, respectively. We expect monthly CPI inflation to come in at around 3.3% in April. In line with our house forecast, such an outturn would push annual CPI from 30.9% to 31.3%.Market participants expect the policy rate to stand at 37.75% at the April 22 MPC meeting. Expectations for the June 11 and July 23 meetings are 37.4% and 36.5%, respectively, while the year-end policy rate expectation has been revised up from 30.6% to 32.9%. We expect the CBT to raise the policy rate from 37% to 40% at the April meeting, aligning it with the prevailing funding rate. This move would mechanically lift the upper bound of the interest rate corridor to 43% and likely be followed by a resumption of funding via one-week repo auctions. As a result, we do not expect an effective change in market rates, which are currently around 40%. In our view, the key signal from such a step would be the preservation of an additional 300bps tightening buffer via the upper bound, should it be needed. Our base case therefore assumes an alignment of the policy rate with market funding conditions without an effective change in the overall stance. That said, we do not rule out an alternative scenario in which the CBT keeps the policy rate unchanged and continues funding through the upper bound. Our year-end policy rate forecast stands at 35%.