Turkey: Central Bank maintains policy rate in September
Latest bank decision: At its meeting on 19 September, the Central Bank of the Republic of Turkey (CBRT) decided to keep the 1-week repo rate at 50.00%. The decision marked the sixth successive hold and was in line with market expectations.
Inflation remains a concern: The key domestic factors influencing the Central Bank’s decision to hold for the sixth time in a row—after 4,150 basis points of hikes since June 2023—include inflation, which has shown no significant change in its underlying trend as of August, and a slowdown in domestic demand which continues to reduce inflationary pressures. The Bank noted that core goods inflation remains low, and stated that it expects a decline in services inflation in Q4. That said, the Bank highlighted that inflation expectations along with pricing behavior are still upside risks to the disinflation process.
Bank softens hawkish rhetoric: The Bank’s guidance grew slightly less hawkish. While it reiterated its commitment to maintaining a tight monetary stance until inflation moderates significantly, it stated that “monetary policy tools will be used effectively” instead of “monetary policy stance will be tightened” in case of a significant and persistent deterioration in inflation. Against this backdrop, the majority of our panelists expect the CBRT to kick off its monetary policy easing cycle in Q4. The Bank is set to reconvene on 17 October.
Panelist insight: Clemens Grafe and Basak Edizgil, economists at Goldman Sachs, commented on the outlook:
“Looking ahead, we think the slowdown in domestic demand will reduce inflation momentum sufficiently enough in September-October to allow the TCMB to deliver the first rate cut (-100bp) in November. The risks are skewed towards a later start of the cutting cycle as the TCMB might want to wait until it sees further clarity on income policy and/or on the persistence of disinflation.”