It's all about the MPC

TURKEY - Report 17 Mar 2024 by Murat Ucer and Atilla Yesilada

The races in Ankara, Istanbul and Izmir turned largely static during the week, while new poll data from Anatolia was full of surprises. The politics author is confident in calling Ankara and Izmir for CHP incumbents, while Imamoglu stands a good chance to edge out AKP’s Kurum in Istanbul.

Yet, Erdogan hasn’t played all his cards yet. The Istanbul race could end up in the “police station” as the Turkish proverb goes. In Anatolia, the bulk of evidence suggests AKP-MHP defending their strongholds in the Black Sea area and Interior Anatolia, while making a bid for CHP-held metropolises like Hatay and Antalya. On the other hand, in some smaller cities IYIP and New Welfare Party are emerging as fierce challengers to AKP-MHP supremacy, while CHP is still in the running for conservative Bursa and Balikesir.

The analysis of foreign affairs is cut short, focusing on new developments in the F-35 joint jet fighter program and relations with Iraq.

January retail sales and industrial production showed the divergence between the two continued with the former rising, and the latter stagnating, which is bad news for both disinflation and external adjustment. Meanwhile, the labor market weakened somewhat in January, volatility in the monthly data notwithstanding, as the broader unemployment rate remained hugely elevated.

As signaled by cash data earlier, the 12-month rolling budget deficit narrowed in February, as revenues, particularly VAT, surged.

The current account posted a $2.6 billion deficit in January, with the 12-month rolling deficit dropping sharply, but the financing was awfully weak, and February current account data, as signaled by preliminary trade data, should yield a less positive picture.

Reserve developments have continued to alarm, while dollarization picked up sharply in the week through March 8.

The key event of the upcoming week is the MPC meeting on Thursday, which, no doubt, is the toughest meeting since the new management took over. According to a poll we saw, the median expectation is no change, though there are a few participants that expect a 250 bps and one participant a 500 bps hike. The econ author thinks no change is probably the likeliest scenario, but assigns non-trivial odds to a hike.

Meanwhile, the unwanted stepchild of the Global Source Partners Turkey family, the Cosmic Strategist, came out of retirement to air out His personal views on this week’s MPC and WHY, as unlikely as it may be, a surprise rate hike could prove transformative for TL assets.

Now read on...

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