Turkish central bank to decide on 250-basis point interest rate cut, predicts Bank of America

U.S.-based Bank of America has forecasted a 250-basis point interest rate cut by the Central Bank of the Republic of Türkiye (CBRT) in January, citing lower inflation rates observed in December.

The report by Bank of America projects that CBRT will implement seven similar cuts throughout 2025, bringing the policy rate down to 30% by the end of the year.

The forecast is based on the unexpected decline in Türkiye’s inflation, which dropped to 44.38% in December, largely driven by an unexpected fall in unprocessed food prices.

‘Interest cuts could be interrupted’

The report also highlighted that any upward movement in inflation could lead to a pause in interest rate reductions. The Bank of America expects positive real interest rates to continue throughout the year, limiting the Turkish lira’s depreciation in real terms. Reflecting this, the institution revised its year-end exchange rate forecast for the Turkish lira against the U.S. dollar from 44 to 41.

On Dec. 26, 2024, the CBRT implemented its first interest rate cut since Feb. 22, 2023, following a gradual decline in Türkiye’s annual inflation over six consecutive months to 47.09%. The 250-basis point cut, exceeding market expectations of 150 basis points, marked the central bank’s return to ease monetary policy after a two-year hiatus.

The Turkish central bank’s next interest rate decision is scheduled for Jan. 23 at 2:00 p.m. (GMT+03), following the Monetary Policy Committee meeting.