Macro and Politics

* TURKSTAT will release April Consumer Confidence Index @ 10:00 local time. The consumer confidence index declined to 85 in March from 85.7, bringing the first-quarter 2026 average to 84.8, up modestly from an average of 84 in the final quarter of 2025. A breakdown of the sub-components suggests a mixed picture: the index tracking households’ current financial conditions improved to 72.8 from 71.3, while expectations for households’ financial situation over the next 12 months deteriorated to 85.6 from 86.8. Similarly, expectations for the general economic outlook over the next 12 months weakened to 79.1 from 81.4. Meanwhile, the index measuring the propensity to spend on durable goods – a key proxy for the domestic demand outlook – edged down to 102.7 from 103.2. Overall, the tentative recovery observed in February appears to have reversed in March amid heightened geopolitical risks and elevated uncertainty. In this context, rising geopolitical tensions linked to the US – Iran conflict are pushing energy prices higher, thereby adding to inflationary pressures, while the concurrent deterioration in consumer confidence is reinforcing palpable downside risks to domestic demand and the broader growth outlook.

*The Monetary Policy Committee (MPC) decision will be announced today @ 14:00 local time. We expect the CBT to raise the policy rate from 37% to 40% at today’s meeting, aligning it with the prevailing funding rate. This step would mechanically lift the upper bound of the interest rate corridor to 43% and likely be followed by a resumption of one-week repo funding. 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 move would be the preservation of an additional 300bps tightening buffer via the upper bound, if needed. Our base case therefore assumes an alignment of the policy rate with market funding conditions, without an effective shift 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%.

* The unadjusted Real Sector Confidence Index (RSCI) declined by 0.4 points in April to 100.6, marking its lowest level since September. The seasonally adjusted index fell by a more pronounced 1.4 points to 98.6, dropping below the critical 100 threshold for the first time since July. As a reminder, the unadjusted RSCI had already posted a sharp 3.1-point decline in March to 101, its steepest monthly drop since November 2023, while the seasonally adjusted measure fell by 4.1 points to 100. It’s worth noting that readings below the 100 threshold signal a deterioration in confidence among real sector participants regarding economic activity. A breakdown of the diffusion indices indicates that, in April, assessments related to fixed investment spending and current total orders provided some support to the headline index. However, this was more than offset by negative contributions from evaluations of total orders over the past three months, the general business outlook, export orders and production expectations for the next three months, current finished goods inventories, and employment expectations. On the capacity side, the Capacity Utilization Rate (CUR) increased to 73.8% in April from 73.3%, while the seasonally adjusted measure remained broadly unchanged at 74%. As global conditions remain shaped by the ongoing US – Iran conflict, we observe a continued weakening in real sector confidence. Reflecting the anticipated drag on activity from the global supply shock and tighter domestic financial conditions, we have recently revised our growth forecast for this year down to 3.2% from 4.0%. We continue to see downside risks to the growth outlook.

* The Treasury and Finance Ministry raised a total of TL58.1bn from the market at yesterday’s auctions of 2y and 5y fixed-coupon government bonds, including TL35.2bn in non-competitive sales. At the 2y auction, the bid-to-cover ratio stood at 1.97x, with the average compounded yield realized at 39.83%. In the inaugural issuance of the 5-year bond, the bid-to-cover ratio was 1.66x, while the average compounded yield came in at 36.16%. Having completed its April domestic borrowing program, the Treasury reached a total domestic borrowing of TL409.4bn for the month, coming in notably below its projected borrowing of TL480.1bn. The Treasury will announce its next 3-month (May – July 2026) domestic borrowing strategy on Thursday, April 30 at 17:30 local time. In the previous (April – June 2026) program, the Treasury had projected domestic borrowing of TL362.1bn against redemptions of TL335.3bn for May.