Zeynel Balcı: Markets Await Inflation Data to Guide Direction

Istanbul stocks remain under selling pressure, while bond yields fall and FX continues a mild upward trend. All eyes now turn to the May inflation report, which may shape expectations for interest rate cuts, writes Hurriyet business columnist and strategist Mr Zeynel Balci.

The Turkish markets continue to reflect a mixed and cautious sentiment. The BIST 100 index, after a modest rebound, has again come under selling pressure. Domestic investors remain sidelined due to high interest rates, and foreign inflows alone are not enough to lift equities.

Meanwhile, the Turkish lira continues to depreciate slightly, despite some improvement in FX market balance. The CBRT’s gross reserves have increased for three consecutive weeks, and FX deposits are declining. Though not at desired levels, portfolio inflows — including stocks and bonds — continue.

Still, market observers link the lira’s weakness to emerging expectations of interest rate cuts. Many savers still view hard currency as a safe haven.

Goldman Sachs: “Carry Trade Is Now Vulnerable”

U.S. investment bank Goldman Sachs recently commented that the Central Bank of Turkey’s tolerance for currency depreciation is undermining what had been one of the world’s most successful carry trade opportunities.

This observation underscores a growing shift in sentiment: while tight monetary policy remains in place, forward-looking markets are starting to price in easing.

Bond Market Prices in Potential Rate Cut

The benchmark government bond yield has fallen from above 50% to below 44%, signaling that the market is anticipating a rate cut. But for the CBRT to act, it will need strong backing from macro data — particularly inflation.

Expectations for the May CPI (to be released tomorrow):

• Monthly: +2.0%

• Annual: +36%

In its most recent inflation report, the CBRT hinted at lower inflation figures for May, possibly opening the door for a cautious policy shift.

Interest Rates Remain the Market’s Main Rival

With the policy rate at 46%, deposit rates hover slightly higher. Although the current CPI is under 38%, savers enjoy a real positive return, even after accounting for withholding taxes of up to 15%.

Market estimates for end-2025 inflation hover between 25–30%, which implies continued real returns for TL deposits.

By contrast, for the BIST 100 to match this level of yield, the index would need to climb to around 12,500–13,500, which seems like a stretch in the short term.

Low Risk Appetite in Equities

Risk appetite remains low on the Borsa Istanbul, and investors continue to wait for a clear catalyst. The most powerful trigger for equities would be a reduction in interest rates, which is the market’s biggest rival at present.

While some forecasts expect easing as early as June, others push expectations toward September. Ultimately, the timing will depend on inflation dynamics.

High interest rates, while suppressing risk-taking, also serve as a protective buffer — helping stabilize capital flows, FX reserves, and overall macro policy.

Politics Disrupting Market-Economy Link

Although Turkey’s economic team remains credible and proactive, recent political developments have weakened the correlation between markets and macro indicators. In many ways, political risk is diluting the effect of sound policy steps.

Still, macroeconomic indicators are showing signs of recovery, especially in the FX balance and capital inflows.

Capital Inflows and FX Reserves Recovering

According to CBRT data for the week ending May 23:

• Foreign inflows into equities: $13 million

• Foreign inflows into bonds: $148 million

Though lower than previous weeks, this marks six consecutive weeks of inflows into equities and three into bonds.

In the same period, the CBRT’s gross reserves jumped by $7.5 billion, reaching $153 billion. Excluding swaps, net reserves rose to $28 billion. The total three-week gain is nearly $15 billion — a sign of stabilizing external balances.

BIST 100: Searching for Support

The BIST 100 continues to trend lower, with key technical support levels at:

• 9,000, then 8,870

• Secondary support at 8,560

On the upside, initial resistance is seen at 9,200 and 9,500.

Though some buying interest is emerging near support zones, selling pressure may persist in the short term. Investors are advised to remain cautious and patient while the inflation–rate cut narrative unfolds.

Source: Zeynel Balcı, Hürriyet

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