The CBRT kept the policy rate stable at 50%, as unanimously expected, but declined to hint at a rate cut, which a majority of Turkish analysts interpreted as the eagerly awaited first rate cut being postponed. However, as our regular contributor Serkan Gonencler comments, CBRT MPC statement was more cautious, than hawkish. Essentially, CBRT bets on a visible deceleration of service prices in 4Q2024, before endeavoring monetary loosening. In that sense, its policy path is as “data dependent” as Fed. Garanti BBVA commented that first rate cut may be delayed to 2025. Akbank Research too, remarked that CBRT kept the door open to a rate cut in 2024, but is likely to swing into action in 1Q2025.
Serkan Gonencler, Chief Economist of Gedik Invest, a premier Turkish brokerage catering to Foreign Institutional Investors wrote:
Serkan Gonencler: More cautious than previous MPC
In its October MPC meeting, the CBRT kept the policy rate unchanged at 50%, in line with expectations, and just as it did since April.
We sense only a slight increase in the level of the CBRT’s cautiousness. The accompanying MPC statement reflects a more hawkish shift with the inclusion of the sentence: “Uncertainty regarding the pace of improvement in inflation has increased in light of incoming data.” Yet, as a counterbalance, the CBRT highlights that domestic demand continues to slow down, approaching disinflationary levels. They also reiterate their expectation that improvement in services inflation to occur in the last quarter.
Apart from these, the CBRT clarifies that the underlying trend of inflation posted a slight increase in September and maintains its previous messages such as: inflation expectations and pricing behaviour pose risks to the disinflation process, it remains highly attentive to inflation risks, and the tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, etc.
In summary, while the CBRT acknowledges heightened uncertainty, the overall tone of the statement does not strike us as overly hawkish, especially given that the uncertainty is specifically tied to “the pace of improvement in inflation”.
Although the policy statement keeps the door open for a rate cut in December, the determining factor will be services inflation. On balance, we interpret that the overall tone of the MPC statement keeps the door open for a potential rate cut in December. Yet, as stated in our various reports, signals regarding the stickiness in service inflation will play a critical role in determining the timing of the first rate cut. In that stance, achieving a marked deceleration in service inflation—ideally to the 2.0-2.5% range— from the current 4.0% levels should support the rate cut cycle.
Garanti BBVA: First rate cut December, or 2025
Our end-2024 CPI inflation forecast is 43%. August and September inflation data indicated that there was no improvement in the inflation outlook. We predict that the CBRT may start the gradual interest rate reduction cycle with 250 basis points in December as the downward trend in inflation becomes clear in the coming months. However, if the improvement in the inflation outlook remains weak in the last quarter of the year, the CBRT may start interest rate cuts in 2025. Until the next MPC meeting, the October inflation data to be announced on November 4 and the CBRT Inflation Report on November 8 will be followed.
Akbank Research: Statement not hawkish, but delays in rate cutting possible
While the statements regarding the policy stance, liquidity management and macroprudential steps in the decision text did not change, the most significant change was the new sentence added to the first paragraph stating that “uncertainty regarding the pace of improvement in inflation has increased”. Despite this change, we still rate the tone of preferred communication as soft (non-hawkish). Therefore, we think that the intention to have the first interest rate cut this year, which was signaled in last month’s text, is maintained. Based on this communication, it is possible that an interest rate cut will be made in December. However, we consider that the inflation trend, which is stronger than the CBRT and market expectations, and the uncertainties regarding the fiscal policy outlook provide sufficient justification to wait for the first quarter of the year.
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