Macro and Politics

*TURKSTAT will release April housing sales figures @ 10:00 local time. Housing sales declined by 2.1% both on a monthly and annual basis in March, reaching 113,367 units. Within total sales, first-hand transactions accounted for 31.5%, while second-hand sales maintained their dominance with a 68.5% share. First-hand housing sales increased modestly by 1.3% y/y to 35,725 units, while second-hand sales declined by 3.6% y/y to 77,642 units. Mortgage-backed sales remained strong in annual terms in March, rising by 3.8% m/m and 35.9% y/y to 25,978 units. As a result, the share of mortgaged sales in total transactions climbed from 20.1% to 22.9%, while other sales accounted for 77.1%. However, following the strong 23.6% monthly increase recorded in mortgage-backed sales in February, the pace of the upward trend appears to have lost considerable momentum in March. We assess that the recent increase in mortgage rates has been an important factor behind this moderation. Indeed, the average housing loan rate rose to 36.6% in April from 34.7% in March. Considering that these rates stood at 40% and 39.4% in February and March of last year, respectively, the relative improvement in financing conditions appears to have continued supporting annual sales dynamics. Nevertheless, the rise in domestic interest rates following the US–Iran war seems to have weakened the monthly momentum in housing sales.

*The CBT will unveil the 2^nd Quarterly Inflation Report of the year @10:30 local time. Governor Karahan’s assessments regarding the inflation outlook, monetary policy stance and growth dynamics, along with the Q&A session, will be closely monitored by markets. As a reminder, in the previous Inflation Report presentation on February 12, the CBT revised its year-end inflation forecast range upward from 13% – 19% to 15% – 21%, while keeping its interim target unchanged at 16%. Following the rise in energy prices after the US–Iran war, we expect the CBT to revise upward both its forecast range and the interim target, which the Bank had previously stated would remain unchanged “unless extraordinary developments occur.” In this context, we believe the current 15% – 21% forecast range may be shifted upward, with the upper bound potentially converging toward 25% – 26%. That said, the Bank may opt for a more limited upward revision of around 3–4 percentage points relative to our expectations, citing the anticipated slowdown in economic activity and the weakening in the output gap. The magnitude of the revision to the interim target will also be important in terms of the message delivered regarding the CBT’s disinflation path. As previously emphasized by Governor Karahan, the interim target is now positioned as a commitment device and a nominal anchor, implying that — unlike the previous framework — there is no longer a mechanical requirement for it to coincide with the midpoint of the forecast range.

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the period of April 30 – May 8 @ 14:30 local time. Based on our calculations derived from the analytical balance sheet, we estimate that the CBT’s gross FX reserves increased by USD6bn to USD171.6bn in the week of April 30 – May 8, while net FX reserves rose by a limited USD619mn to USD54.2bn. We expect today’s offialc data to point to a reserve buildup broadly in line with our calculations. To recall the previous week’s data: Foreign investors recorded net outflows of USD228.4mn from the equity market and USD282.1mn from the bond market (excluding repo transactions) in the week of April 24 – 30. Moreover, during the mentioned week, residents’ FX deposits (excluding gold, EUR/USD parity effect adjusted) declined by USD2.2bn, while their total FX deposits (including gold, price-adjusted) posted a net decline of USD2.4bn in the week of April 24 – 30. In terms of official reserves, the CBT’s gross FX reserves fell by USD5.6bn to USD165.5bn, net FX reserves declined by USD572mn to USD53.6bn and net reserves excluding swaps slid by USD130mn to USD36.2bn.

* The current account balance posted a deficit of USD9.7bn in March, broadly in line with the market median forecast, while coming in slightly below our house estimate of USD10.4bn. As a result, the current account deficit widened to its highest level since January 2023. On a cumulative basis, the current account deficit reached USD23.7bn in the January–March period, marking a significant deterioration compared to the USD14.1bn deficit recorded in the same period of the previous year. Upside risks to our year-end current account deficit forecast of USD45bn (2.6% of GDP) have become increasingly evident. Given persistently elevated global energy costs and the ongoing uncertainty environment, we expect the rise in the energy import bill to continue exerting pressure on the current account balance in the period ahead.