Introduction to Interest Rate Cuts
Global investment banks Citi and JPMorgan are predicting that the Central Bank of the Republic of Türkiye (CBRT) will start cutting interest rates as early as July. This prediction comes after the CBRT made a dovish shift in its latest policy statement, which has been interpreted as a sign that the bank may begin to ease its monetary policy.
Shift in Policy Language
The CBRT held its benchmark interest rate steady at 46% during its June meeting, which was in line with market expectations. However, the bank removed a previous reference to further tightening, replacing it with a broader pledge to use “all monetary policy tools effectively.” Analysts have taken this as a sign that the bank may be preparing to ease policy amid a moderating inflation outlook.
Predictions from Citi and JPMorgan
Citi emphasized that the CBRT’s latest decision was consistent with forecasts and highlighted the possibility of a 250 bps rate cut in July. JPMorgan echoed this view, suggesting that the central bank could follow a path of sequential reductions in the second half of the year, trimming the rate by 250 bps at each meeting. Both institutions anticipate a 250-basis-point reduction at the next meeting, which could signal the beginning of a gradual easing cycle.
Deutsche Bank’s Projections
Deutsche Bank’s Türkiye economist, Yigit Onay, also expects rate cuts to begin in July, assuming improved financial conditions. He projected an initial 250 bps cut, stating that the CBRT appears to be preparing for a cautious transition rather than a sharp policy reversal. Onay forecasted a 1.5% increase in June inflation and noted potential volatility from recent weather-related shocks to food prices and rising fuel costs. Despite this, he emphasized that the core inflation trend remains downward, in line with the CBRT’s assessment.
Year-End Projections
Onay said Deutsche Bank expects the policy rate to fall to 37.5% by year-end, slightly above the market consensus of 36%. He added that the current high real interest rate gives the CBRT space to ease policy without undermining its disinflation goals. He also forecasted the USD/TRY rate to reach 45 by the end of the year.
Market Expectations
According to the CBRT’s May market survey, Turkish participants expect a more aggressive move, projecting a 300 bps rate cut in July. The CBRT policy rate is projected to remain at 46.0% in the near term before gradually falling to 20.1% by mid-2027.
Warning of Renewed Lira Pressure
Despite growing rate cut expectations, Commerzbank voiced concerns about the implications for the Turkish lira. The bank’s emerging markets economist, Tatha Ghose, said the change in tone suggests upcoming rate cuts, which may intensify downward pressure on the lira. Ghose argued that the removal of policy-tightening language and the improving inflation trend together point to renewed monetary loosening.
Conclusion
In conclusion, the Central Bank of the Republic of Türkiye is expected to start cutting interest rates as early as July, according to predictions from global investment banks Citi and JPMorgan. The dovish shift in the CBRT’s policy statement has been interpreted as a sign that the bank may begin to ease its monetary policy. While some banks, such as Deutsche Bank, expect a cautious transition, others, like Commerzbank, warn of renewed pressure on the Turkish lira. As the situation continues to unfold, it will be important to monitor the CBRT’s decisions and their impact on the Turkish economy.
