Macro and Politics

* The Treasury will hold a 7m zero-coupon bond and a 2y fixed-coupon bond auctions, as well as the direct sales of a 2y USD-denominated bond and a 2y USD-denominated lease certificate and finalize its domestic borrowing program for July. The Treasury raised TL19.9bn through the direct sale of a 2-year lease certificate yesterday, bringing total domestic borrowing since the beginning of the month to TL258.3bn. 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%. Given that the Treasury has borrowed TL258.3bn so far this month, the Treasury could borrow approximately TL350bn through today’s auctions and direct sales.

* The CBT released the results of its July 2026 Market Participants Survey. Accordingly, participants revised their year-end 2026 CPI expectation marginally higher to 29.2% from 29.1%, while the year-end 2027 forecast edged up to 21.5% from 21.4%. The 12-month-ahead inflation expectation increased to 24.0%, whereas medium- and longer-term inflation expectations improved modestly. Participants expect monthly CPI inflation at 1.7% in July, while our house forecast stands slightly higher at 1.8%. A print in line with our forecast would imply annual CPI easing to 31.8% in July. We maintain our year-end inflation forecast at 28%, although renewed US – Iran tensions have increased upside risks to our outlook. Turning to monetary policy, survey participants do not expect any change in the CBT's funding composition following the 23 July MPC meeting, with the expected overnight rate remaining at 40% and the policy rate expectation unchanged at 37%. Our base case remains that the CBT will resume weekly repo auctions after the July meeting, initiating a gradual normalization in funding conditions. Accordingly, we expect overnight rates to converge only gradually towards the 37% policy rate and continue to believe that policy easing will begin only in 4Q26. Yet, we do not rule out the possibility that persistent upside pressure on oil prices could delay the CBT's return to weekly repo auctions. We maintain our year-end policy rate forecast at 35%. Participants' year-end USD/TRY expectation edged up slightly from 51.5 to 51.6, remaining broadly in line with our year-end forecast of 51.5. Regarding the broader macro outlook, participants revised their 2026 GDP growth forecast marginally lower to 3.1%, while leaving the 2027 forecast unchanged at 4.1%. Current account deficit expectations stand at USD49.3bn for 2026 and USD43.3bn for 2027. Our house forecasts remain at 3.2% for 2026 GDP growth and USD54bn (around 3% of GDP) for the year-end current account deficit.