Macro and Politics

* The CBT will release September Real Effective Exchange Rate (REER) today @14:30 local time. Based on the average change in the equally weighted currency basket in September, the monthly inflation outturn, and our assumption for the weighted geometric foreign price index derived from inflation forecasts for Turkey’s trading partners, we estimate that the CPI-based real effective exchange rate will point to a monthly real appreciation of around 0.6% in the TL in September.

* TURKSTAT will release September seasonally adjusted CPI and core CPI aggregates today @16:00 local time. Based on our calculations, we estimate that seasonally adjusted (SA) monthly CPI inflation came in at 1.61% in September, while CPI-B and CPI-C recorded increases of 1.63% and 1.68%, respectively. We expect today’s official adjusted figures to be broadly in line with our estimates.

* The CBT will release the Monthly Price Developments report for September today @18:00 local time. The report is a technical one and does not contain a policy message. Still, the assessment of trend core inflation will be monitored closely.

The Treasury will hold auctions of a 4y TLREF-indexed bond and an 8y fixed-coupon bond today, alongside the direct sale of a 1y USD-denominated bond, to finalize its domestic borrowing program for October. The Treasury raised TL100.8bn, including non-competitive sales, through yesterday’s auctions of 2y and 5y fixed-coupon bonds. The 2y bond auction recorded a bid-to-cover ratio of 1.63x, with the average compounded yield at 39.87%, while the 5y bond auction saw a bid-to-cover ratio of 1.7x and an average compounded yield of 38.71%. The Treasury also raised a combined TL191.6bn through three direct sales yesterday. These comprised TL15.2bn from a 2y gold-denominated bond, TL117.1bn from a 2y gold-denominated lease certificate and TL59.3bn from a 2y TLREFK-indexed lease certificate. Together with the bond auctions, the Treasury raised a total of TL292.4bn from the domestic market yesterday. Under its three-month (Oct–Dec 2026) domestic borrowing strategy, the Treasury plans to raise a total of TL414.8bn from the domestic market in October through four auctions and four direct sales, against TL436.6bn of redemptions. Following yesterday’s auctions and direct sales, the Treasury could raise around TL122.4bn through today’s remaining transactions to meet its monthly borrowing target.

* September CPI inflation came in at 1.8% m/m, below our 2.1% forecast and the market median of 2.2%, bringing annual inflation down to 29.7% from 31.5%. Core inflation also eased, with annual CPI-B and CPI-C declining to 29% and 28.7%, respectively. The downside surprise in headline inflation was largely driven by a sharp decline in unprocessed food prices, while our underlying trend indicators point to a moderation in the underlying trend of inflation to around 1.8%. Services inflation nevertheless remains elevated at 2.2% m/m and 37.7% y/y, warranting continued caution over underlying inflation dynamics. Despite the lower-than-forecast September print, price increases we observed in early October have exceeded our previous assumptions, while persistently elevated energy prices and upward pressures from gradual SCT adjustments have prompted us to revise our 4Q26 inflation path higher. Accordingly, we revise our 2026 year-end inflation forecast from 28% to 29.2%. Cooling domestic demand and favorable seasonal effects in the final two months of the year should continue to support the disinflation process, albeit modestly. We maintain our call for 100bp rate cuts at both the October and December MPC meetings, bringing the policy rate to 35% by year-end. The decline in annual inflation through September, alongside increasingly visible signs of cooling domestic demand, should provide room for monetary easing in the final quarter.