BBVA Garanti, Barclay’s and UBS were among many domestic and global investment banks which were disappointed by the higher–than-consensus (2.9% mom vs 2.3% consensus) September CPI print. Year-end inflation forecasts are being updated and with less certainty the date for the first rate cut is postponed. Barclay’s comment appears the most appropriate: Central Bank wants to cut to appease an extremely angry and shell-shocked business community, but has no excuse to hide behind. Thus, a lower October print is very important.
BBVA Garanti: Higher trend inflation due to core prices
Consumer prices rose by %2.97 m/m in September, higher than our expectation (2.5%) and consensus (2.2%). Annual consumer inflation came down below 50% (49.37% vs. 51.97% prev.) on the back of base effects and steadily depreciating currency. Yet, underlying consumer inflation trend worsened further due to the deteriorating core inflation led by the elevated services inflation and accelerating goods inflation.
Despite the ongoing moderation in domestic demand and relatively muted cost push factors, high inflation expectations, strong inertia, worsened pricing behavior, and uncertainties on wage hikes, administered prices and tax adjustments at the beginning of 2025 maintain upside risks on inflation outlook. We expect year-end inflation to slow-down to 43%, which could create a limited room for the CBRT to start a cautious easing cycle. Given the challenges on inflation outlook on top of delayed support from fiscal policy, we expect the first rate cut in December with 250 bps, followed by gradual cuts and maintenance of credit growth caps for a while in order to contain any inflationary impact.
Barclays: October CPI will be critical
The September CPI print at 3.0% m/m was a negative surprise. Our base case remains that the first cut will be of 250bp in November. However, if the October CPI print is also unsatisfactory (ie, above 2% m/m), we think the CBT could consider delaying its first rate cut to December or January.
UBS explains CBT’s dilemma: positive ex-post real interest rates versus risk of slower progression in core inflation
We believe today’s inflation data could possibly create something of a dilemma for the Central Bank of Turkey (CBT): on one hand, macro rebalancing in Turkey has been moving ahead and ex-post real interest rates (using latest CPI) turned positive in September for the first time since Q2-2021; and on the other hand, core inflation may not slow enough to match the CBT’s guidance to drop below 1.5% m/m on average in Q4-24 (though even with the September rebound the CBT’s 2.5% average target for Q3-24 was met).
We think the combination of less hawkish language in the September CBT statement, the rebound in net FX reserves to USD 33bn by end-September and the fact that the ex-post real policy rate turned positive in September signal that the beginning of the monetary easing cycle is coming closer. In addition, we note that deposit de-dollarisation continued (the stock of FX deposits fell by USD 2.6bn in September), and the FX-protected deposit (KKM) stock declined to TRY 1.5trn or USD 44bn. While we still think the CBT’s easing cycle is likely to kick-start in November (-250bps to 47.5%), the risk of the CBT easing happening later (December 2024 or in 2025) has increased somewhat after today’s release.
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