Introduction to Turkey’s Monetary Policy
The Turkish central bank’s upcoming interest rate decision is expected to mark the start of a new rate-cutting cycle. This decision is being closely watched as the main item on the market agenda, especially since disinflation continues and market turmoil has largely faded. The Central Bank of the Republic of Türkiye (CBRT) is set to make this significant decision.
Expected Rate Cut
Next Thursday’s meeting of the Monetary Policy Committee (MPC) is expected to see the CBRT kick off a renewed easing cycle with a 250 basis-point rate cut. This expectation is based on a survey and a forecast by a Wall Street bank. The majority of economists polled, 16 out of 17, forecast the central bank to cut the policy rate at the July 24 meeting. The median forecast was for a 250 basis-point cut to 43.50%, with predictions ranging from 42.50% to 44.50% among those expecting an easing step.
Forecast and Predictions
Most economists expect rate cuts to continue in the months ahead, with the policy rate falling to 36% by the end of 2025. This is according to the median of 17 forecasts. Furthermore, the monetary easing is likely to continue through at least the third quarter of 2026, as shown by an earlier Reuters poll of economists. If delivered, the move would mark the first cut since a surprise 350 basis-point hike in April, which reversed an earlier easing cycle.
Reasoning Behind the Rate Cut
The tightening in April helped stabilize markets after the jailing of Istanbul Mayor Ekrem Imamoğlu sent Turkish assets and the lira sharply lower in March. However, with the current economic conditions, including disinflation and weaker domestic demand, the central bank is expected to deliver prudent rate cuts to keep the monetary stance tight. Aggressive monetary tightening since mid-2023, combined with favorable energy prices, has helped reduce Türkiye’s annual inflation rate by more than half over the past year.
Current Economic Conditions
The inflation rate lastly dipped to 35.05% in June, which is a significant decrease. The better-than-expected print renewed expectations that the central bank would begin cutting rates again. Monthly inflation was 1.37%, with price declines in key categories such as food and beverages reinforcing the central bank’s view that a disinflation trend is taking hold.
Conclusion
In conclusion, the Turkish central bank’s decision to cut interest rates is a significant move that is expected to mark the start of a new rate-cutting cycle. With the majority of economists forecasting a 250 basis-point cut, it is likely that the policy rate will fall to 36% by the end of 2025. The current economic conditions, including disinflation and weaker domestic demand, support the central bank’s decision to deliver prudent rate cuts. As the market continues to watch the central bank’s moves closely, it is clear that the Turkish economy is taking steps towards monetary easing, which is expected to continue through at least the third quarter of 2026.
