Macro and Politics

*The Monetary Policy Committee (MPC) decision will be announced today at 14:00 local time. We expect the MPC to cut the policy rate by 100bps to 36%, in line with the market consensus. We believe that the decline in annual inflation as of September, coupled with growing signs of cooling domestic demand, will provide room for further monetary easing in the final quarter of the year. Accordingly, we anticipate 100bp rate cuts at both the October and December MPC meetings, bringing the policy rate to 35% by year-end. Nevertheless, should the inflation outlook fail to improve to the extent we anticipate, we believe the scope for further rate cuts could become more limited.

* TURKSTAT will release October Consumer Confidence Index at 10:00 local time. The Consumer Confidence Index rose from 90.8 to 91.9 in September, while its three-month moving average increased from 89.5 to 90.8. Across the sub-components, the financial situation of households at present edged lower, while the financial situation expectation of households and the general economic situation expectation over the next 12 months both improved. The assessment on spending money on durable goods over the next 12 months posted the strongest increase among the sub-components, rising by 3.6% m/m. Following the more pronounced weakening in household consumption in the second quarter, we view the recent improvement in consumer confidence and the September increase in households’ propensity to spend on durable goods as a limited correction at this stage. We will continue to monitor incoming consumption indicators to assess whether

* The CBT will release weekly foreign portfolio flows, money and banking statistics, and international reserves for the October 9 – 16 period today at 14:30 local time. Based on our calculations using the CBT’s analytical balance sheet, we estimate that gross reserves declined by USD2.5bn to USD169.1bn during the October 9–16 week, while net reserves fell by USD6.3bn to USD51.4bn. We expect the CBT’s official reserve figures, due to be released today, to confirm a decline broadly in line with our analytical balance sheet-based calculations. To recall the previous week’s data: Foreign investors recorded net sales of USD248.2mn in equities during the October 2–9 week, while purchasing USD451.1mn in bonds (excluding repo transactions). Residents’ FX deposits (excluding gold and adjusted for the EUR/USD parity effect) increased by USD294mn during the October 2–9 week, while total FX deposits (including gold, adjusted for the price effect) increased by USD324mn. The CBT’s gross reserves rose by USD4.2bn to USD171.6bn during the October 2–9 week, ending a six-week streak of declines. Net reserves increased by USD4bn to USD57.7bn. Meanwhile, the swap stock fell by USD2.4bn to USD13.5bn, lifting net reserves excluding swaps by USD6.4bn to USD44.1bn.

* The unadjusted Real Sector Confidence Index (RSCI) declined by 2.2 points to 99.8 in October, falling below the 100 threshold for the first time since December 2024, while the seasonally adjusted RSCI decreased by 1.4 points to 101.1. Among the index components, assessments of current stocks of finished products, fixed investment expenditures, employment and export orders over the next three months contributed positively to the index. By contrast, assessments of the general course of business, production over the next three months, and overall order books for both the past three months and the current period weighed on confidence. Notably, the 5.1-point decline in production expectations for the next three months, coupled with a deterioration in expectations for domestic order books, points to weakening demand conditions in manufacturing. Meanwhile, the Capacity Utilization Rate (CUR) edged up to 74.5% from 74.2%, while the seasonally adjusted CUR increased to 74.3% from 74.1%. Despite the modest improvement in capacity utilization, the deterioration in real sector confidence, particularly in production and domestic order expectations, suggests a weakening outlook for manufacturing activity heading into 4Q26. Recent indications of a pronounced cooling in household demand, driven by tighter financial conditions, liquidity developments and negative wealth effects, further reinforce our assessment that the slowdown in domestic demand could deepen. We maintain our 2026 GDP growth forecast at 3.2% for now, although we believe downside risks to our outlook have become increasingly pronounced.