Macro and Politics

*The Monetary Policy Committee (MPC) decision will be announced today at 14:00 local time. Our base case remains that, following today’s MPC meeting, the CBT will gradually resume weekly repo auctions, although we believe uncertainty surrounding the timing of this step has increased in recent weeks. Renewed tensions between the US and Iran have heightened upside risks to the inflation outlook through higher oil prices, which could prompt the CBT to pursue a more cautious timeline in normalizing its funding composition through the phased resumption of weekly repo auctions. Accordingly, we continue to expect overnight rates to converge only gradually from the current 40% toward the 37% policy rate. At the same time, we do not rule out the possibility that a sustained increase in oil prices and a further deterioration in global risk sentiment could delay the CBT's return to weekly repo auctions into the coming months. We maintain our base case that room for policy rate cuts will emerge only towards the final quarter of the year and keep our year-end policy rate forecast unchanged at 35%.

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the July 10 – 17 period at 14:30 local time today. Based on our calculations derived from the CBT’s analytical balance sheet, we estimate that net FX reserves declined by USD4.9bn to USD51.3bn during the week of July 10–17, while gross FX reserves fell by USD2.9bn to USD160.4bn. We expect today’s official reserve data to confirm a decline broadly in line with our estimates.

* TURKSTAT will release July Consumer Confidence Index at 10:00 local time. The consumer confidence index rose from 85.8 to 87.9 in June, reaching its highest level since May 2023. As a result, the index, which averaged 84.8 in the first quarter of 2026, increased to an average of 86.4 in the second quarter. Following a weak performance within the 85–86 range since March amid the negative impact of rising geopolitical tensions on expectations, consumer confidence posted a notable recovery in June, driven by an improvement in sentiment. Looking at the sub-components, the index measuring the financial situation of households at present increased from 69.2 to 72.3, while the financial situation expectation of households over the next 12 months rose from 87.9 to 89.5. The general economic situation expectation over the next 12 months recorded a notable increase from 81.4 to 83.9. Meanwhile, the assessment on spending money on durable goods over the next 12 months — an important gauge for the domestic demand outlook — edged higher from 104.5 to 105.9. Taken together, the recovery observed in consumer confidence throughout the second quarter points to a more balanced domestic demand outlook relative to the first quarter. High-frequency indicators, which we previously reckoned were signaling annual growth below 3% in the second quarter, have shown signs of improvement more recently, suggesting that annual growth in 2Q26 may come in slightly above 3%. Accordingly, we maintain our 2026 year-end growth forecast at 3.2%.

* The unadjusted Real Sector Confidence Index (RSCI) fell by 1.3 points to 102.2 in July, while the seasonally adjusted index declined by 0.8 points to 101.2. An analysis of the diffusion indices underlying the unadjusted RSCI indicates that assessments regarding export orders, total employment and production over the next three months, together with current finished goods inventories, contributed positively to the headline index. In contrast, evaluations of fixed capital investment expenditure, current total orders, total orders over the past three months, and the general business outlook weighed on the index. Meanwhile, the Capacity Utilization Rate (CUR) declined to 73.9% in July from 74.5% in the previous month, while the seasonally adjusted measure eased to 73.8% from 74.3%. July's readings suggest that the improvement observed in June has lost momentum, pointing to renewed weakness in manufacturing activity. The simultaneous decline in both the RSCI and CUR indicates that tight financial conditions and emerging signs of softer domestic demand continue to weigh on production. Accordingly, we maintain our cautious medium-term growth outlook and keep our 2026 GDP growth forecast unchanged at 3.2%.