Macro and Politics

* TURKSTAT will release May inflation figures today @ 10:00 local time. sWe expect monthly CPI inflation to ease to 1.4% in May, while noting that the balance of risks around our forecast remains skewed to the downside. The median market expectation stands at 1.6% m/m, higher than our house forecast. A realization in line with our estimate would see annual CPI inflation edge down from 32.4% to 32.2%. Following the significantly higher-than-expected CPI print in April, we anticipate a significant moderation in monthly inflation dynamics in May. We believe the loss of momentum in food prices throughout the month will be a key driver of the expected slowdown in monthly inflation. Our year-end CPI forecast remains at 28%.

* The Treasury and Finance Ministry will release May cash budget figures @ 17:30 local time. The Treasury cash balance posted a deficit of TL251.2bn in April, while the primary balance registered a deficit of TL3.2bn. Meanwhile, the central government budget recorded a deficit of TL338.7bn during the month, with the primary balance posting a deficit of TL81.1bn. As a result, the cumulative central government budget deficit reached TL758.8bn in the first four months of the year, while the 12-month rolling budget deficit widened to TL1.7tn. The deterioration in the budget balance in April was primarily driven by a decline in SCT revenues under the fuel price stabilization mechanism and the fading impact of tax collections that had been pulled forward into March due to changes in VAT filing deadlines. We expect the budget deficit to widen further in May. The reintroduction of the fourth provisional corporate tax payment last year resulted in corporate tax collections being recorded in May, whereas the corresponding revenues were shifted to February this year. This creates an adverse base effect for corporate tax revenues and is likely to result in a palpable year-on-year decline in corporate tax collections in May, exerting additional pressure on the budget balance. Our year-end budget deficit forecast stands at TL3.3tn, corresponding to 4.0% of GDP.

* Foreign investors were net sellers of USD91.1mn in the equity market during the shortened May 22 – 26 period, while the bond market (excluding repo transactions) saw a net foreign outflow of USD134.5mn. Meanwhile, foreigners’ share in the total government bond stock remained unchanged at 5.6% over the same period. During the same period, residents’ FX deposits (excluding gold, EUR/USD parity effect adjusted) increased by USD1.2bn, while their total FX deposits (including gold, price-adjusted) rose by USD1.5bn in the week of May 22 – 26. According to the CBT’s official reserve data, gross FX reserves fell by USD950mn to USD159.2bn during the week of May 22 – 26, while net FX reserves declined by USD1.2bn to USD45.7bn. Over the same period, the swap stock increased by USD932mn to USD19.2bn, while the net reserves excluding swaps retreated by USD2.1bn to USD26.5bn.