Macro and Politics

Macro and Politics

* The CBT will release the results of the Survey of Market Participants for August @ 10:00 local time. According to the CBT’s July 2026 Survey of Market Participants, respondents’ end-2026 CPI inflation expectation edged up to 29.2% from 29.1%, while the end-2027 expectation rose marginally to 21.5% from 21.4%. The 12-month-ahead inflation expectation increased to 24% from 23.8%, whereas the 24-month-ahead expectation declined to 17.8% from 18.3%. The five-year-ahead inflation expectation also eased to 11.5% from 11.9%. Following the July inflation outcome, which came in slightly below market expectations, we expect to see a modest decline in market participants’ 12-month-ahead inflation expectations.

* At the CBT’s 3^rd Inflation Report presentation of the year delivered by Governor Fatih Karahan, the Bank revised its end-2026 baseline point inflation forecast upward from 26% to 28%. The end-2027 and end-2028 point forecasts were left unchanged at 15% and 9%, respectively. Meanwhile, the year-end interim targets, which serve as a commitment and anchor and are not intended to be revised unless extraordinary circumstances arise, were maintained at 24% for 2026, 15% for 2027 and 9% for 2028. We expect annual inflation to remain broadly flat at around 31.6% in August. While we maintain our end-2026 inflation forecast at 28%, we continue to see the risks to our forecast as tilted to the upside. On the funding side, Governor Karahan stated that a return to one-week repo auctions, the CBT’s main funding instrument, is on the Bank’s agenda for the period ahead, while emphasizing that the timing will depend on market conditions. This explicit guidance supports our expectation for a gradual normalization in the funding composition. Accordingly, while we maintain our end-2026 policy rate forecast at 35%, we assess that the upside risks to our rate call have increased in tandem with the upside risks to the inflation outlook.

* The current account posted a USD4.2bn deficit in June, below both the market consensus and our forecast. The cumulative deficit reached USD34.5bn in 1H26, up from USD26.0bn in the same period last year, while the 12-month rolling deficit widened to USD38.9bn from USD37.0bn in May. The core balance, excluding gold and energy, recorded a USD1.5bn surplus in June. We maintain our end-2026 current account deficit forecast at USD54bn, equivalent to 3% of GDP. Preliminary July trade data point to some narrowing in the monthly trade deficit. Looking further ahead, we expect the drag from the US-Iran war on economic activity to gradually subside, but continue to envisage only a modest adjustment in the external balance rather than a pronounced improvement in 2H26.

* Foreign investors recorded a mere USD1.5mn net purchase of equities in the July 31–August 7 week, while the bond market attracted a sizeable USD545.8mn net foreign inflow (excluding repo transactions). Meanwhile, foreigners’ share in the total bond stock rose from 7.1% to 7.3%, reaching its highest level since March. Over the same period, residents’ FX deposits (excluding gold and adjusted for the EUR/USD parity effect) increased by USD1.2bn, while their total FX deposits (including gold and adjusted for the price effect) increased by USD1.8bn. In terms of official reserves, the CBT’s gross FX reserves increased by USD13.9bn to USD178.4bn in the July 31–August 7 week, while net FX reserves rose by USD8.8bn to USD62.9bn. The swap stock declined by USD928mn to USD12.4bn over the same period, while net reserves excluding swaps increased by USD9.7bn to USD50.4bn.

*Total house sales declined by 17% y/y to 123,603 units in July. First-hand house sales fell by 8.6% y/y to 42,529 units, while second-hand house sales decreased by 20.8% y/y to 81,074 units. Mortgage-backed sales, by contrast, rose by 23.7% y/y to 23,888 units, although their share in total house sales edged down to 19.3% in July from 20.0% in June. Turning to financial conditions in the housing market, the average mortgage rate increased to 41.46% in July from 40.34% in June, compared with 42.56% in July 2025. While we assess that base effects were the main driver of the marked slowdown in the annual growth of mortgage-backed sales in July, we believe that elevated financing costs continue to weigh on credit-driven housing demand.