Turkish Central Bank CBRT began its easing cyhcle days before the New Year wtih a 250 basis point cut, which was more or less expected by market participants. The cut follows the decline in headline and core i,nflation in the last quarter of the year, and should thus leave the ex-ante real rate constant. Yet, the rate cut is premature, because domestic deamnd is still to strogn to provide comofort while expectations are cxompletely umoored. So where does it go from here?
BBVA Garanti Invest notes:
In the monetary policy framework of 2025, the CBRT reduced the number of meetings in 2025 to 8 from 12 and already signaled that they can start easing with a bolder move since they now gain room to have a scheduled wait & see time.
In today’s MPC decision, the CBRT seems to feel more comfortable about the inflation outlook, most likely following the decision on the minimum wage hike of 30%. Yet, there are still uncertainties about the start of the year administrative price hikes and tax adjustments and how the monthly inflation trend will move up in early 2025.
In this regard, the CBRT gives the commitment to react prudently on a meeting-by-meeting basis with a focus on the inflation outlook and to use monetary policy tools effectively in case a significant and persistent deterioration in inflation is foreseen.
The CBRT also aims to simplify deposit rules and finalize the KKM deposits in 2025. Therefore, it will be essential to provide adequate real returns requiring the policy rate to remain sufficiently above the inflation to contain the dollarization tendency of residents, particularly the households.
We stay cautious at our funding rate expectation of 31% for 2025 year end and also expect the CBRT to maintain credit growth caps as long as needed to support normalization in domestic demand. We will revise the path of our rate projections once we understand the distribution of the scheduled meetings for next year.
Tacirler Invest adds:
CBRT, which maintained its cautious tone in its message today, communicating a “cautiously optimistic” outlook on inflation risks.
It underlined that it will not proceed on a pre-determined path, with rate decisions to be made on a meeting basis. We estimate that interest rate cuts will continue throughout most of 2025, lowering the policy rate to 30% at the end of the year. While determining our 2025 year-end policy rate forecast, we worked with the assumption that care will be taken to stay above a certain level in ex-post and ex-ante real policy interest levels and the average of these two interest levels.
Finally, our regular contributor Gedik Invest commented:
The CBRT maintains its expression that the level of the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path, taking into account both realized and expected inflation. Accordingly, we continue to believe that the CBRT, at least in the early stages of the rate-cutting cycle, will aim to maintain monetary policy tightness by keeping the policy rate 300-400 basis points above the prevailing inflation rate. Based on our expectation that CPI inflation could decline to 33-35% by the end of the first half of the year, we maintain our view that the policy rate could be lowered to around 37-38% levelsby June/July. During this period, maintaining the stability in the Turkish Lira will be crucial for the disinflation process.
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