Macro and Politics

*The CBT will release June Balance of Payment figures today @10:00 local time. We expect the current account deficit, which narrowed to $1.5bn in May, to widen to $5.7bn in June. The market median forecast stands at $5.0bn, below our estimate. We expect the balance of payments-defined foreign trade deficit to widen to $9.7bn in June, while the services surplus is likely to rise slightly above $6.0bn, supported by higher net travel revenues. We maintain our 2026 year-end current account deficit forecast at $54bn (3.0% of GDP).

*TURKSTAT will release July housing sales figures @ 10:00 local time. Total home sales rose by 15.8% y/y to 129,979 units in June. First-hand home sales increased by 23.1% y/y to 43,406 units, while second-hand sales rose by 12.5% to 86,573 units. Mortgaged home sales recorded a strong 72.1% y/y increase to 25,993 units, while their share in total home sales declined to 20.0% from 21.2% in May. Turning to financial conditions in the housing market, the average mortgage rate increased to 40.34% in June from 38.43% in May, compared with an average of 43.47% in June 2025. Despite mortgage rates rising back above the 40% mark, we believe the strong annual increase in mortgaged sales was largely driven by borrowing costs remaining below their year-ago levels, coupled with favorable base effects. Nevertheless, the share of mortgaged sales in total home sales remaining at around 20% suggests that elevated financing costs continue to weigh on credit-driven housing demand.

*The CBT will unveil the 3^rd Quarterly Inflation Report of the year @10:30 local time. Governor Karahan’s assessments regarding the inflation outlook, monetary policy stance and growth dynamics, along with the Q&A session, will be closely monitored by markets. It is worth recalling that at its second Inflation Report presentation of the year on May 14, the CBT revised its medium-term inflation forecasts upward and suspended the publication of year-end forecast ranges. Accordingly, the year-end inflation forecast for 2026 was raised from 16% to 24%, while the 2027 forecast was revised from 9% to 15%. Governor Fatih Karahan noted that the Bank had suspended the publication of forecast ranges amid elevated uncertainty and, in line with its revised communication framework, had disclosed only point forecasts under the baseline scenario for that report period. These point forecasts were set at 26% for end-2026 and 15% for end-2027. We do not expect any changes to either the inflation forecasts or the point forecasts at today’s third Inflation Report presentation of the year. Rather than the inflation projections themselves, we expect the market focus to center on signals regarding the anticipated shift in the funding composition and the timing of normalization in liquidity conditions. In particular, any guidance during the Q&A session on the process of returning to weekly repo auctions will be closely watched. We expect the presentation to emphasize the increasingly evident slowdown in domestic demand and the improvement in the underlying trend of inflation observed in July. We also expect the CBT to reiterate its assessment from the latest MPC statement that the cooling in domestic demand has become more pronounced, signaling that this trend is supporting the disinflation process. Such communication could also reinforce expectations for a normalization in liquidity conditions. Yet, we do not expect the funding cost to decline rapidly from 40% to the 37% policy rate. We expect the funding cost to converge gradually toward the policy rate and believe that this process would create room for a policy rate cut only toward the final quarter of the year. Should the upward trend in oil prices persist, we do not rule out the possibility that the CBT could delay its return to weekly repo auctions. Accordingly, we maintain our year-end policy rate forecast at 35%.

* The CBT will release weekly foreign portfolio flows, money & banking statistics, and international reserves for the July 31 – August 7 period at 14:30 local time today. Based on our calculations using the CBT's analytical balance sheet, we estimate that the CBT's gross FX reserves surged by USD13.7bn to USD178.2bn, while net FX reserves increased by USD8.7bn to USD62.8bn, in the week of July 31 – August 7. We expect today’s official reserve data to confirm a reserve build broadly consistent with our analytical balance sheet-based estimates. To recall the previous week’s data: Foreign investors recorded net sales of $186mn in the equity market during the July 24–31 period, while remaining net buyers in the bond market (excluding repo transactions) with purchases totaling $164mn. Over the same period, residents' FX deposits (excluding gold and adjusted for the EUR/USD parity effect) declined by $2.6bn, while their total FX deposits (including gold and adjusted for the price effect), declined by $3.5bn. In terms of official reserves, the CBT's gross FX reserves increased by $1.8bn to $164.5bn, net FX reserves rose by $3.0bn to $54.1bn and net reserves excluding swaps climbed by $2.5bn to $40.7bn during the July 24–31 period.