Turkey: Central Bank holds policy rate in July
At its meeting on 23 July, the Central Bank of the Republic of Turkey (CBRT) decided to keep the 1-week repo rate at 50.00%. The decision was in line with market expectations and marked the fourth consecutive hold.
The Central Bank’s decision was primarily influenced by domestic factors, including a notable decline in the underlying trend in monthly inflation during June. Moreover, the Bank noted that the latter would only increase slightly in July despite adjustments in administered prices and taxes, as well as supply-side factors in unprocessed food. Additionally, the decision was driven by slowing—albeit resilient—domestic demand, food prices, services inflation and inflation expectations, as well as geopolitical risks, which continue to exert inflationary pressures.
The Central Bank reiterated that it would maintain a tight monetary stance until a significant and sustained decline in the underlying trend of monthly inflation is observed and inflation expectations align with the projected forecast range. It also stated that monetary policy could be tightened further if a sharp and persistent deterioration in inflation is foreseen. The majority of our panelists expect the Bank to start its monetary easing cycle in Q4. The next meeting is scheduled for 20 August.
Clemens Grafe and Bazak Edizgil, analysts at Goldman Sachs, commented on the outlook:
“We are forecasting that the [CBRT] will start cutting rates in September with a 100bps cut followed by 900bps of cuts in Q4 2024, an earlier and sharper cycle than consensus expectations and market pricing. The reasoning behind the rate forecast is that by September we are forecasting annual inflation to fall to 44%yoy and sequential inflation to fall to 20%mom (sa, annl.)”