Turkey: Central Bank cuts rates in July
Bank resumes monetary policy easing: At its meeting on 24 July, the Central Bank of the Republic of Turkey (TCMB) reduced the 1-week repo rate from 46.00% to 43.00%. Moreover, it cut the overnight lending rate from 49.00% to 46.00% and the overnight borrowing rate from 44.50% to 41.50%. The cut to rates was slightly larger than what markets had expected and was the first since March. Still, rates remain historically elevated.
Disinflation paves the way for a rate cut: The Bank highlighted that the underlying trend of inflation remained flat in June, and added that domestic demand has decelerated, pushing down price pressures. Nonetheless, the TCMB reiterated that inflation expectations and pricing behavior by firms, along with the potential economic effects of geopolitical developments and rising trade protectionism, are closely monitored risks.
Further easing ahead: The TCMB continued to become slightly more dovish as it dropped the statement that “all monetary policy tools will be used decisively” to combat inflation. Against a backdrop of this rising dovishness and sustained disinflation, our panel sees additional rate cuts ahead. That said, the spread on the end-2025 rate remains wide at 32.00–40.00%. The next meeting is set for 11 September.
Panelist insight: ING’s Muhammet Mercan commented:
“In summary, recent data support continued easing given i) improving inflation expectations, ii) signs of slowing economic activity, and iii) renewed foreign capital inflows and a decline in domestic FX demand, which have bolstered the CBT’s foreign exchange reserves.”