EMEA Economic Comment "Turkey: CPI eases a tad in June, rates are on hold..."

Research evidence excerpt

EMEA Economic Comment "Turkey: CPI eases a tad in June, rates are on hold..."

by the projected c13% rise in cereals and field crops in

2026 and the almost 60% expected rise in production of fruits & beverages). Our

forecast exceeds the Central Bank of the Republic of Türkiye's (CBRT) 26% end-2026

projection in the central bank's May inflation Report. We note that sectoral inflation

expectations remain at elevated levels (corporate sector: 33% 1-year out and

households: 46% one-year out), which could create further inertia in (services) inflation.

At this stage there are multiple risks to our forecast: commodity price trajectories,

exchange rate movements and elevated inflation expectations.

We see the policy rate on hold in July

We believe that the relevant macro backdrop - including today's inflation print - is

consistent with the Monetary Policy Committee (MPC) of the Central Bank of the

Republic of Türkiye (CBRT) keeping its policy rate on hold at 37% at its next meeting on

23 July, with the effective rate at which the CBRT funds the banks is likely to be kept at

40% (i.e. at the O/N lending rate level). In our recent note on Turkey, we argued that we

expect the CBRT to restart the 1-week repo auction in September - though we

acknowledge that the CBRT could consider an earlier re-opening its main policy

instrument. We flag three key developments for monetary policy. First, net FX reserves

excluding swaps reached USD 28bn on the latest data - which is similar to the position

post the last MPC meeting on 11 June. Excluding the move in gold portion of

FX reserves, net FX reserves actually picked up by USD 4bn. According to our calculation,

this is mainly explained by the fact that in H2 June foreign investors built back their carry