Macro and Politics

* According to the July Sectoral Inflation Expectations (SIE) Survey, 12-month-ahead annual inflation expectations increased modestly among market participants, rising by 0.14pp to 23.95%. In contrast, expectations continued to ease across the real sector and households, declining by 0.60pp to 32.5% and by 1.19pp to 44.94%, respectively. Meanwhile, the share of households expecting inflation to decline over the next 12 months increased by 1.93pp to 17.63%, while the proportion anticipating higher inflation fell by 2.48pp to 63.98%. Overall, the July SIE points to a continued improvement in inflation expectations among the real sector and households despite a limited upward revision in short-term expectations by market participants. That said, inflation expectations across both the real sector and households remain substantially above those of market participants, suggesting that a durable improvement in inflation expectations has yet to be firmly established.

* Credit rating agency Moody’s refrained from taking a rating action on Turkey during its scheduled review on Friday, instead publishing a periodic review note on the sovereign. The agency emphasized that the publication does not constitute a rating action and should not be interpreted as signaling an imminent rating change. Moody’s acknowledged that the policy framework implemented since mid-2023 has made meaningful progress in curbing inflationary pressures, reducing macroeconomic imbalances, and restoring confidence in the Turkish lira. At the same time, citing the impact of geopolitical tensions in the Middle East on global energy prices, the agency revised its end-2026 inflation forecast upward to 29%. Moody’s expects the Turkish economy to expand by 3.4% in 2026, while projecting growth to regain momentum in 2027, supported by fiscal stimulus. The agency also expects the current account deficit to widen to around 3.5% of GDP in 2026, reflecting a higher energy import bill and weaker exports, before narrowing again in 2027 under its baseline assumption of easing oil prices. On the monetary policy front, Moody’s assessed that the CBT could continue its rate-cutting cycle as inflation declines, while emphasizing that the overall policy stance is likely to remain sufficiently restrictive to support the disinflation process and preserve demand for Turkish lira-denominated assets. Looking ahead, the agency argued that maintaining the current policy framework would further strengthen macroeconomic stability, reduce external vulnerabilities, and contribute to a gradual improvement in the current account deficit as a share of GDP, with these developments expected to translate into a stronger sovereign credit profile over the medium term.