Turkey: Central Bank leaves rates unchanged in June
Central Bank stands pat: At its meeting on 19 June, the Central Bank of the Republic of Turkey (TCMB) decided to keep the 1-week repo rate at 46.00%. The decision aligned with market expectations and followed a 350 basis point hike in April.
Inflation and demand moderate but risks remain: The Bank noted a decline in the underlying trend of inflation in May, with leading indicators suggesting that this moderation continued into June. Additionally, data for the second quarter pointed to a slowdown in domestic demand. Nonetheless, recent geopolitical developments, rising protectionism, inflation expectations and pricing behavior likely dissuaded the TCMB from cutting rates.
Imminent interest rate cuts: The Central Bank’s forward guidance became slightly more dovish as it swapped the statement, “the monetary stance will be tightened,” with “all monetary tools will be used effectively.” Accordingly, all of our panelists expect the TCMB to kick off a monetary policy easing cycle in Q3. Still, the spread on the end-2025 rate remains wide at 32.00–40.00%. The next meeting is scheduled for 24 July.
Panelist insight: ING’s Muhammet Mercan said:
“Recent data releases suggest that there’s room for policy easing. This comes down to improvements in inflation expectations, signals of a more significant slowdown in the second quarter, the resumption of foreign flows and easing FX demand among residents supporting the CBT’s FX reserves. We currently expect a 350bp cut to 42.50%, and a return to pre-March levels in July […]. The CBT could prefer to start rate cuts with a smaller move, given that the current level of geopolitical risks will likely add weight to the Bank’s already cautious approach.”
Analysts at the EIU commented:
“A rate cut of 200-300 basis points appears likely when the MPC next meets on 24 July. However, this could be postponed in the event of high monthly inflation in June, further increases in global oil prices and/or pressure on the lira. We still expect the Central Bank to reduce the policy rate to well under 40% by the end of 2025, but it is likely to retain the option of funding the banks at up to 300 basis points higher if domestic or external political developments prompt renewed demand for the lira.”