Macro and Politics

* The Ministry of Treasury and Finance will hold auctions of a 3y FRN and a 4y TLREF-indexed bond today. Following today’s auctions, the Treasury will hold auctions of a 4y CPI-linked bond and a 9y fixed coupon bond tomorrow, followed by direct sales of a 1y USD-denominated bond and a 1y USD-denominated lease certificate on Thursday, August 20, completing its domestic borrowing program for August. Under its August–October 2026 domestic borrowing strategy, the Treasury plans to borrow TL536.7bn from the domestic market against TL596.3bn of redemptions in August, implying a rollover ratio of 90%. Having already raised TL269bn since the beginning of the month, the Treasury is expected to raise around TL270bn through this week’s auctions and direct sales.

* The Treasury and Finance Ministry will release July central government budget figures @ 11:00 local time. The Treasury cash balance posted a TL395.7bn deficit in July, bringing the cumulative cash deficit to TL1.5tn in January–July. The July Treasury cash balance provides a leading indication for today’s central government budget outturn. Following a TL114.2bn surplus in June, supported by tax collections deferred to June and a favorable base effect from provisional tax payments, we expect the central government budget to return to a deficit in July. We maintain our end-2026 budget deficit forecast at TL2.8tn, equivalent to 3.3% of GDP.

* The CBT’s August Survey of Market Participants showed a modest improvement in the 12-month-ahead inflation expectation, which declined to 23.7% from 24.0%, while the end-2026 inflation expectation edged up to 29.4% from 29.2. Survey participants expect monthly inflation at 1.7% in August, compared with our 1.9% forecast, which would leave annual inflation broadly unchanged at around 31.6%. We expect favorable base effects to kick in from September, bringing annual inflation closer to 30%, with the disinflation trend becoming more pronounced towards year-end. We maintain our end-2026 inflation forecast at 28%, albeit with risks tilted to the upside. On monetary policy, the survey points to no immediate normalization in the funding composition, with the expected overnight repo rate remaining at 40% for end-August, while the year-end policy rate expectation stands at 35.2%. Following Governor Karahan’s indication that a return to one-week repo auctions is on the agenda, we expect funding costs to converge only gradually towards the 37% policy rate, creating room for policy rate cuts only towards the final quarter of the year. We maintain our end-2026 policy rate forecast at 35%, while seeing risks skewed to the upside.