Macro and Politics

* TURKSTAT will release July industrial production (IP) figures today at 10:00 local time. The sequential (seasonally and calendar-adjusted monthly figure) industrial production (IP) edged up by 0.1% m/m in June, in line with our expectation, returning marginally to positive territory, while calendar-adjusted annual IP contracted by 1.4% y/y. We had expected a monthly increase in industrial production in June, reflecting the fading impact of the bridge-day effect associated with the Eid holiday and the signals from intermediate goods imports excluding gold and energy. However, following the 2.9% m/m contraction recorded in May, the near-flat and limited increase in June indicates that underlying weakness in the industrial sector persists. Accordingly, after contracting by 1.4% y/y in 1Q26, industrial production increased by 1.9% y/y in 2Q26 (1.4% y/y on a calendar-adjusted basis). On a sequential basis, seasonally and calendar-adjusted industrial production grew by 2% q/q in 2Q26, following a marginal 0.1% q/q increase in the first quarter. For the second half of the year, we expect the loss of momentum in economic activity to gradually ease, paving the way for a more balanced growth profile. Nevertheless, we do not anticipate a strong and broad-based acceleration in growth. We maintain our 2026 GDP growth forecast at 3.2%.

*The Monetary Policy Committee (MPC) decision will be announced today at 14:00 local time. We expect the MPC to keep the policy rate unchanged at 37%, in line with the market consensus. Having resumed one-week repo auctions two weeks ago and lowered the effective funding rate by 300bp, we believe the CBT will prefer to assess the transmission of this easing to market interest rates before taking any further action. In addition, the renewed escalation in geopolitical tensions, coupled with Brent oil prices rising above USD95/bbl, warrants some time to assess the implications of external developments for the inflation outlook. Meanwhile, we expect favorable base effects to bring annual CPI inflation closer to 30% in September, which should create room for a resumption of rate cuts at the October meeting. Accordingly, following an unchanged policy rate decision in September, we expect the MPC to deliver 100bp cuts in both October and December, bringing the policy rate to 35% by year-end.

* The CBT will release weekly foreign portfolio flows, money and banking statistics, and international reserves for the August 28–September 4 period today at 14:30 local time. Based on our calculations using the CBT’s analytical balance sheet, we estimate that gross FX reserves declined by USD4.4bn to USD183.9bn, while net FX reserves fell by USD1.4bn to USD65.1bn during the week. We expect today’s official data to confirm a decline in reserves broadly in line with our analytical balance sheet-based estimates. To recall the previous week’s data: Foreign investors recorded a net purchase of USD329mn in the equity market in the August 21–28 week, while posting a net sale of USD86.6mn in the bond market, excluding repo transactions. Over the same period, residents’ FX deposits (excluding gold and adjusted for the EUR/USD parity effect) declined by USD2.0bn, while their total FX deposits (including gold, adjusted for the price effect) declined by USD2.7bn. Besides, The CBT’s FX reserves posted a modest decline in the August 21–28 week. Gross FX reserves decreased by USD252mn to USD188.2bn, while net FX reserves fell by USD298mn to USD66.5bn. The swap stock declined by USD264mn to USD10.7bn over the same period, while net reserves excluding swaps remained broadly unchanged at USD55.8bn.