Macro and Politics

* The CBT will release the results of the Survey of Market Participants for July @ 10:00 local time. The CBT's latest June 2026 Market Participants Survey showed that respondents' year-end CPI expectation for 2026 edged up to 29.1% from 28.9%, while the year-end inflation forecast for 2027 increased to 21.4% from 21.1%. In today's July survey, market attention will primarily focus on expectations ahead of Thursday's Monetary Policy Committee (MPC) meeting. Although the policy rate currently stands at 37%, the CBT continues to fund the market at the upper bound of the interest rate corridor (40%). Therefore, we believe that participants' expectations for the overnight rate in the BIST Repo and Reverse Repo Market, rather than policy rate forecasts, will provide a more accurate gauge of market expectations regarding the interest rate outlook. Our baseline scenario remains that, following the 23 July MPC meeting, the CBT will gradually resume one-week repo auctions and initiate a symbolic normalization in its funding composition. Accordingly, we expect overnight rates to converge only gradually from 40% towards the 37% policy rate. We believe that renewed geopolitical tensions between the US and Iran, through their impact on oil price volatility, reinforce our expectation that any decline in market interest rates will remain gradual and limited. We maintain our year-end policy rate forecast at 35%. On the inflation front, we expect monthly CPI inflation to come in at around 1.8% in July. The price developments we have monitored throughout the month point to a pickup in food inflation, largely driven by vegetable prices. In addition, we estimate that the increase in examination co-payments at both public and private healthcare institutions following the revision to the Health Implementation Communiqué (SUT), together with other administered price adjustments, will contribute roughly 0.6 percentage points to July's monthly inflation. A realization in line with our forecast would bring annual CPI inflation down from 32.1% to 31.8%. That said, we believe that the renewed escalation in the US-Iran conflict has increased the upside risks surrounding our 28% year-end inflation forecast.

* The Treasury will hold the direct sale of a 2y lease certificate today. This will be followed on July 21 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, thereby completing its July domestic borrowing program. According to the Treasury’s July–September 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%. Having already raised TL238.5bn since the beginning of the month, the Treasury could borrow approximately TL370bn through this week’s auctions and direct sales.

* Credit rating agency Fitch affirmed Turkey’s ‘BB-’ sovereign credit rating with a Stable Outlook in its review released on Friday. The agency cited Turkey’s low public debt burden, large and diversified economy, relatively high GDP per capita compared with rating peers, its ability to preserve access to external financing during periods of market stress, and a resilient banking sector as key rating strengths. Fitch projects year-end inflation at 29.5% in 2026, while noting that its inflation forecasts for Turkey remain among the highest across its rated sovereign universe. The agency also cautioned that an early or aggressive easing cycle could materially amplify inflationary pressures and heighten risks to macroeconomic stability and the external balance. Fitch expects the Turkish economy to grow by 2.8% in 2026 and 4.4% in 2027, while forecasting the current account deficit to widen to 3.0% of GDP in 2026. According to the sovereign rating calendar, Turkey’s next sovereign rating review is scheduled for July 24, Friday, by Moody’s. We expect Moody’s to leave Turkey’s ‘Ba3’ sovereign credit rating and Stable Outlook unchanged.