Turkey: Central Bank decreases rates in September
Central Bank cuts more than expected again: At its meeting on 11 September, the Central Bank of the Republic of Turkey (TCMB) reduced the 1-week repo rate from 43.00% to 40.50%. The decision marked the second consecutive cut and was yet again anticipated by markets but underestimated in size. Still, rates remain historically elevated.
Disinflation enables the cut: The key domestic factors influencing the Central Bank’s decision included a slowdown in the underlying trend of inflation in August. Moreover, the Bank highlighted that despite Q2’s stronger-than-expected GDP expansion, demand conditions remain at disinflationary levels. That said, the TCMB noted that food prices and service items with high inertia are putting upward pressure on inflation, while inflation expectations, pricing behavior and global developments continue to pose risks to the disinflation process.
TCMB to cut rates further: The Bank’s forward guidance was muted but all our panelists expect additional monetary policy easing in the coming meetings, with end-2025 projections ranging from 32.00% to 38.00%. The next meeting is scheduled for 23 October.
Panelist insight: ING’s Muhammet Mercan commented:
“The [TCMB] signals no changes to the macroprudential framework and intends to continue rate cuts, with the pace depending on the inflation outlook, dollarisation trends, and reserve dynamics – especially given potential market volatility around upcoming court hearings. If the Bank maintains the pace of cuts at 250bp, the policy rate would fall to 35.5% by year-end, while reducing the pace to 200bp would result in a rate of 36.5%.”