Macro and Politics

* The Treasury will hold 4y CPI-indexed bond auction as well as the direct sales of 1y USD-denominated bond and 1y USD-denominated lease certificate today. According to the Treasury and Finance Ministry’s three-month domestic borrowing strategy for the June–August 2026 period, domestic redemptions amounting to TL555bn in June are planned to be met with total domestic borrowing of TL543.8bn, implying a rollover ratio of 98%. After today’s auction and direct sales, the Treasury will hold auctions for a 4y TLREF-indexed and a 4y FRN bond on June 9. Following this week’s operations, the Treasury will conduct the direct sales of a 2y gold-denominated bond and a 2y gold-denominated lease certificate on June 11. This will be followed by auctions of an 8m zero-coupon bond and a 2y fixed-coupon bond on June 15, and auctions of a 1y TLREFK-indexed bond and a 5y fixed-coupon bond on June 16, thereby completing its June domestic borrowing program.

*The CBT will release May Real Effective Exchange Rate (REER) today @14:30 local time. Considering the inflation realizations and the average Basket/TRY change for May, we expect the REER to increase to 106.5, implying a mere 0.2% real appreciation of the Turkish lira.

* The CBT will release the Monthly Price Developments report for May today @18:00 local time. The report is a technical one and does not contain a policy message. Still, the assessment of trend core inflation will be monitored closely.

* May CPI rose by 1.71% m/m, exceeding both our house forecast of 1.4% and the market median expectation of 1.6%. As a result, annual CPI inflation edged up to 32.6% from 32.4%. Recall that monthly CPI inflation had surprised significantly to the upside in April, coming in at 4.2%. The moderation in monthly inflation observed in May was primarily driven by a slowdown in food price dynamics, as the deviation between our forecast and the actual outcome stemmed largely from food prices. While the food and non-alcoholic beverages category declined by 0.5% m/m in May, our projections had assumed a more pronounced correction in this component. Moreover, producer prices increased by 2.8% m/m during the month, while annual PPI inflation rose marginally to 28.9% from 28.6%. Core inflation indicators also pointed to a softer monthly trend, with both Core-B and Core-C slowing to 2.9% m/m. On an annual basis, however, Core-B and Core-C increased to 31.3% and 30.4%, respectively. While our year-end 2026 CPI forecast remains at 28%, we continue to assess the balance of risks as skewed to the upside. We expect the disinflationary contribution from food prices to persist into June, albeit at a diminishing pace, while the moderation observed in transportation prices could help contain upward pressure on headline inflation. Nevertheless, supply-side risks stemming from geopolitical developments continue to pose challenges to the near-term inflation outlook.