Macro and Politics

* The CBT released its October 2026 Survey of Market Participants. Participants’ year-end CPI inflation expectation for 2026 remained unchanged at 29.6%, while the 2027 year-end expectation increased to 23.3% from 22.7%. The 12-month-ahead inflation expectation rose to 23.9% from 23.7%, while the 24-month-ahead expectation declined to 17.9% from 18.3%. The five-year-ahead expectation edged up to 12.2% from 12.1%. Respondents expect monthly CPI inflation of 2.1% in October, followed by 1.2% in November and 1% in December. Our October CPI forecast stands above the survey consensus at 2.4% m/m, which would bring annual inflation down to 29.5% from 29.7%. Market participants expect the CBT to cut its policy rate by 100bp to 36% at the October 22 MPC meeting, followed by another 100bp reduction to 35% on December 10. Our policy rate projections are aligned with these expectations. The survey's year-end 2026 USD/TL expectation edged down to 51.5 from 51.6, matching our own forecast of 51.5.

* Total house sales fell by 9.3% y/y to 142,390 units in September. First-hand house sales increased by 3.9% y/y to 51,519 units, while second-hand house sales declined by 15.3% y/y to 90,871 units. Mortgage-backed sales rose by 5.1% y/y to 23,397 units, although their share in total house sales fell to 16.4% from 17.4% in August. Turning to financial conditions in the housing market, the average mortgage rate edged down to 41.91% in September from 41.99% in August, compared with 38.80% in September 2025. With annual growth in mortgage-backed sales slowing further in September, we maintain our view that elevated financing costs continue to constrain credit-driven housing demand.

* The Residential Property Price Index (RPPI) rose by 1.2% m/m and 22.3% y/y to 239.4 in September, corresponding to a 5.7% y/y decline in real terms. The New Tenant Rent Index (NTRI) increased by 2.1% m/m and 26.6% y/y, implying a 2.4% y/y contraction in real terms. The September figures indicate that both house price appreciation and new tenant rent increases continued to lag inflation, although the annual declines in real terms moderated somewhat compared with August.

* Credit rating agency Standard & Poor’s (S&P) did not publish a sovereign rating update for Turkey on Friday, despite October 16, 2026 being listed as a scheduled review date. Turkey’s long-term foreign-currency sovereign rating remains at BB-, three notches below investment grade, with a stable outlook. While the absence of a rating action is consistent with our expectation that S&P would maintain both the rating and outlook, the agency could have issued a brief assessment. It is worth noting that scheduled review dates do not necessarily result in the publication of a rating report or a new rating decision. S&P last reviewed Turkey’s sovereign rating on April 17, 2026. All three major credit rating agencies—Moody’s, S&P and Fitch—currently rate Turkey three notches below investment grade, with stable outlooks.