Macro and Politics

* The Treasury and Finance Ministry will hold a 4y TLREF-indexed bond auction and a 5y fixed-coupon bond auction today. According to the Treasury’s three-month (Jul – Sep 2026) domestic borrowing strategy, it plans to borrow a total of TL606.8bn in July against redemptions of TL638.7bn, implying a rollover ratio of 95%. The Treasury commenced its July domestic borrowing program with the direct sales of a 2y gold-denominated bond and a 2y gold-denominated lease certificate on Thursday, July 2, raising TL48.2bn in total. Following today’s auctions, the Treasury will hold the direct sale of a 2y lease certificate on July 20. This will be followed by auctions of a 7m zero-coupon bond and a 2y fixed-coupon bond, as well as the direct sales of a 2y USD-denominated bond and a 2y USD-denominated lease certificate on July 21, thereby completing its July domestic borrowing program.

* The Treasury and Finance Ministry will release June cash budget figures @ 17:30 local time. The central government budget posted a deficit of TL298.2bn in May, while the primary balance recorded a deficit of TL169.3bn. As a result, the cumulative central government budget deficit reached TL1.1tn in the Jan – May period, with the rolling 12-month deficit widening from TL1.7tn to TL2.2tn. The elevated budget deficit in May was primarily driven by a sharp decline in withholding income tax revenues and the adverse base effect on corporate tax collections stemming from the reintroduction of the fourth provisional tax payment last year. While SCT revenue losses associated with the échelle mobile system became more pronounced in April and May, we believe that the recent decline in oil prices could ease pressures on the budget outlook in the period ahead. The easing burden of the échelle mobile system, together with tax collections deferred to June, could contribute to a more balanced budget performance in June compared to previous months. We maintain our 2026 year-end budget deficit forecast at TL2.8tn (3.3% of GDP).

* The CPI-based real effective exchange rate (REER) index declined by 0.8 points in June to 104.9, marking its second consecutive monthly decline. Over the same period, the PPI-based REER index increased by 0.7 points to 100.98. An analysis of the underlying drivers of the CPI-based REER indicates that, on average, the US dollar and the euro appreciated by 1.81% and 0.42%, respectively, against the Turkish lira in June. Meanwhile, monthly CPI and domestic PPI inflation stood at 0.99% and 1.80%, respectively. Accordingly, the increase in domestic consumer prices exerted upward pressure on the CPI-based REER. However, the downward impact stemming from movements in the nominal exchange rate basket and developments in the global CPI basket proved stronger, resulting in a decline in the CPI-based REER in June.