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Turkey Monetary Policy January 2025

Turkey: Central Bank decreases rates again in January

Central Bank delivers second successive cut, as expected: At its meeting on 23 January, the Central Bank of the Republic of Turkey (TCMB) decided to reduce the 1-week repo rate from 47.50% to 45.00%. The move marked the second consecutive cut and aligned with market expectations.

Cooling price pressures enable cut: The cut was motivated by a decrease in inflation in December and relatively low core goods inflation. Additionally, the Bank assessed that domestic demand is at levels that support disinflation. That said, the TCMB expects inflation to increase in January due to services items with time-dependent pricing and backward indexation. The Bank stated that while inflation expectations and pricing behavior are improving, they continue to present risks to the disinflation process, leading it to refrain from a larger cut.

TCMB to continue cutting ahead: The Central Bank did not provide explicit forward guidance on the future direction of interest rates but indicated that it will maintain a tight monetary stance until price stability is achieved through a sustained decline in inflation. Additionally, the TCMB reiterated that it will make its decisions on a meeting-by-meeting basis, focusing on the inflation outlook. Our Consensus is for the Bank to deliver another 250 basis point cut at its next meeting on 6 March. The TCMB is then expected to continue softening its stance, with an expected terminal 2025 rate of around 30.00%.

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