Macro and Politics

* TURKSTAT will release June inflation figures today @ 10:00 local time. We expect monthly CPI inflation to come in at 1.0% in June, which would bring annual inflation down to 32.1. We continue to observe the decline in food prices that began in May extending into June, leading us to expect a second consecutive month of negative monthly food inflation. Yet, the increase we have observed in vegetable prices towards the end of June suggests that food inflation could return to positive territory in July. We believe that the tax adjustments scheduled for July, particularly the upcoming SCT revisions, are likely to play a decisive role in shaping the near-term inflation outlook. Following the ceasefire between the US and Iran, we think the recent correction in energy prices could partially alleviate inflationary pressures in the short run. We expect annual CPI inflation to continue to retreat during the summer months, falling below 30% by September and below 29% by October. We maintain our 2026 year-end CPI forecast at 28%, as we continue to assess risks around our forecast as moderately skewed to the upside, given the recent deterioration in inflation expectations and the lagged effects of cost shocks on pricing behavior.

* Foreign buying interest persisted during the June 19 – 26 period, with non-residents recording net purchases of USD203.3mn in equities and USD339.7mn in the bond market excluding repo transactions, marking the second consecutive week of inflows into equities and the third consecutive week into bonds. Over the same period, foreigners’ share in the total bond stock increased from 5.9% to 6.1%, reaching the highest level since the week of March 27. Rolling 12-month cumulative figures point to net foreign inflows of USD3.0bn into equities and USD5.2bn into the bond market on an ex-repo basis. On a year-to-date basis, non-residents have been net buyers of USD1.5bn in equities, while the bond market excluding repo transactions has recorded a cumulative foreign outflow of USD884mn. During the same period, residents’ FX deposits (excluding gold and adjusted for EUR/USD parity effect) declined by USD471mn, while their total FX deposits (including gold and adjusted for price effect) declined by USD1.1bn. According to the CBT’s official reserve data, gross FX reserves fell by USD8.0bn to USD149.2bn during the June 19 – 26 week, while net FX reserves declined by USD6.6bn to USD45.3bn. We believe the decline in reserves was largely driven by the correction in gold prices observed over the same period. As of June 26, gold accounts for 63.6% of the CBT’s gross FX reserves. Over the same period, the swap stock decreased by USD2.7bn to USD16.7bn, while net reserves excluding swaps deteriorated by USD3.9bn, falling to USD30.7bn.