The hold on rates of the Turkish central bank is likely to extend for a little longer than the market initially predicted, according to a recent poll that showed economists abandoned predictions of an earlier move.
The Central Bank of the Republic of Türkiye (CBRT) is expected to wait until December or January to cut interest rates after higher-than-expected inflation in September, as per the results of a Reuters poll.
Six of the 10 poll respondents said the bank will lower its key rate from the current 50% in December, while four predicted it will wait until January.
Most expected an initial reduction of 250 basis points, to 47.5%, while one projected a 500-point cut, based on the poll conducted on Tuesday and Wednesday.
Their expectations highly converge with recent evaluations of major U.S. and global banks, which also changed their earlier forecasts, mostly moving the first rate cut expectations from November to January.
A wave of analysts and Wall Street majors, including JPMorgan and Goldman Sachs, delayed their calls for a rate cut to as early as the start of the next year amid a slowdown of disinflation in September and a larger-than-expected uptick in month-over-month inflation reading.
Monthly inflation was much higher than expected at nearly 3% in September, even as the annual rate fell to 49.4%, the data from the country’s statistical institute showed last week.
Turkish central bank lifted rates by a cumulative 4,150 basis points from June 2023 to March this year but has kept the policy unchanged since.
At 50%, the CBRT policy rate is now higher than the annual consumer price index (CPI) for the first time since 2021, marking a milestone in an aggressive tightening cycle meant to curb soaring prices.
However, last week’s data prompted a note of caution from the central bank and prompted analysts to toss out predictions of speedy easing.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, anticipates a 200-250 basis-point cut in December and sees the main rate lowered to the 30% to 35% range by the end of 2025, assuming inflationary pressures ease.
“The major risk to this view is a sustainable rise in energy prices that would keep pressure on inflation and delay the first move to Q1,” she said.
In a Reuters poll conducted in September, three economists had expected the first rate cut in October, four predicted November, three saw December and two predicted the first quarter of next year.
But after the surprisingly high price measures last month, boosted partly by education-related costs, CBRT Governor Fatih Karahan said there remains “some distance to cover” before achieving the bank’s two main inflation goals.
He said the two conditions were a significant and permanent decrease in the main trend of monthly inflation and the convergence of expectations to the bank’s own forecast range.
ING Bank, in an analysis after the release of the latest inflation data on Oct. 3 said that services remain a “key risk” to disinflation in Türkiye but conveyed the consideration that “the downtrend should continue.”
It said that the lagged effects of monetary tightening on credit and domestic demand, as well as the continued real appreciation of the Turkish lira, are likely “the key factors that will keep the underlying inflation trend on a downward path for the remainder of this year.”
“Meanwhile, the odds of a rate cut in November have declined and we may only see a change here if October’s inflation data brings a significant positive surprise,” it said.
The central bank is scheduled for its next monetary policy committee meeting on Oct. 17.
