Turkish central bank likely to continue interest cut cycle: Analysts

International financial institutions broadly agree that the Central Bank of the Republic of Türkiye (CBRT) is likely to proceed with another interest rate cut at its upcoming Monetary Policy Committee meeting as inflation continues to decline.

One of the world’s top three credit rating agencies, U.S.-based Fitch Ratings, expects the CBRT to lower its policy interest rate to 28% by the end of 2025 and to 21% by the end of 2026, according to senior director Erich Arispe Morales.

Speaking to Anadolu Agency (AA), Morales also projected that inflation would continue its downward trend, reaching 23% by the end of 2025 and 18% in 2026.

“This reflects a commitment to maintaining a tight monetary policy stance, even during the easing cycle. It’s also important to note that broader financing and monetary conditions are supported by macro-prudential tools, which the central bank is expected to fine-tune to ensure consistency with disinflation,” he added.

Fitch upgraded Türkiye’s credit rating from B+ to BB- with a stable outlook in September 2024 and reaffirmed both the rating and outlook at the end of January 2025. However, Morales noted that elevated inflation remains the “main policy challenge,” as Türkiye’s inflation rate is still higher than that of other countries with a BB rating.

Interest-cut cycle could slow after April: Deutsche Bank

In an interview with business-focused Bloomberg HT on Tuesday, German Deutsche Bank’s Türkiye Economist, Yigit Onay, stated that a 250-basis-point interest rate cut is expected at the next meeting, adding that unless there is significant inflationary pressure, there is room for further reductions in March and April.

Onay emphasized that while the bank maintained its 28% inflation forecast, its outlook diverged more negatively compared to market expectations.

After April, the scope for additional rate cuts is likely to narrow due to declining returns and persistent inflationary pressures, prompting the central bank to slow the pace of monetary easing, he remarked. He added that Deutsche Bank forecasts a policy rate of 32.5% by the end of the year, highlighting potential upside risks in monetary policy.

“We have seen some improvements recently, but inflation expectations among businesses and households remain significantly above forecasts. This suggests that future inflation expectations and realizations could exceed the central bank’s projections,” Onay said.

Accommodative stance: Citigroup

The world’s largest financial institution, U.S.-based Citigroup, also weighed in on Türkiye’s monetary policy outlook. Citi analysts indicated that while January 2025 inflation figures came in higher than expected, signals from the central bank’s latest Monetary Policy Committee statement suggest that policymakers may still consider easing monetary policy in the coming months.

Despite ongoing inflationary pressures, Citi analysts highlighted the possibility of a policy shift as early as the March meeting, suggesting that the CBRT might adopt a more “accommodative stance” in response to improving macroeconomic conditions.

Citi forecasts a decline in Türkiye’s policy rate to 29% by the end of the year, assuming the disinflation trend remains on track.

However, analysts warned that uncertainties surrounding fiscal and income policies could pose risks to this projection, potentially compelling the central bank to carefully balance economic growth objectives with the need to maintain price stability.

The Turkish central bank is set to release its first inflation report of 2025 on Friday, Feb. 7, while the next monetary policy meeting is scheduled for Mar. 6 at 2:00 p.m. (GMT+3).