Turkey: Central Bank leaves rates unchanged in November
Bank holds as expected: At its meeting on 21 November, the Central Bank of the Republic of Turkey (CBRT) decided to keep the 1-week repo rate at 50.00%. The decision marked the eighth consecutive hold and was in line with market expectations.
Inflation backdrop improves: The Bank noted that the underlying trend of inflation declined in October and stated that domestic demand is seemingly cooling further in Q4, reaching disinflationary levels. Moreover, it added that a decline in services inflation has become more apparent. Meanwhile, the CBRT said that inflation expectations are improving but continue to pose an upside risk.
Monetary policy easing approaches: The CBRT reiterated that it will maintain a tight stance until there is a significant and sustained decline in inflation. A slight majority of our panel see the Bank holding rates at its last 2024 meeting on 26 December. That said, all our panelists expect the CBRT to start cutting rates by Q1 2025, and our Consensus is for a cumulative reduction of almost 2,000 basis points by end-2025.
Panelist insight: Goldman Sachs analysts Clemens Grafe and Bazak Edizgil expect the Bank to start cutting rates in January:
“We continue to forecast an initial small 100bp cut in January. The Bank’s end-year [inflation] forecast at 44% is in line with ours. It requires an average inflation rate of 1.5% in November and December. In our view this is realistic, but given the past upside surprises, we think the Bank will first want to see inflation fall in line with its forecasts before starting an easing cycle. Further, we think it will want to wait for the determination of the minimum wage hike and how it affects inflation in January.”
Meanwhile, ING’s Muhammet Mercan sees the first cut in December:
“Uncertainty surrounding a new year wage hike has been a contributing factor to expectations that the [CBRT] would prefer to wait until the January MPC [Monetary Policy Committee]. However, a statement from President Tayyip Erdogan’s hinted that the minimum wage adjustment will be based on expected inflation (likely with an additional buffer to support wage earners), and this should provide a clarity on this front in our view. Accordingly, we continue to expect the bank to start cutting rates with a measured move in December, unless we see a negative surprise in November’s inflation data.”