Turkish central bank to slow interest cuts by June, analysts forecast

The Central Bank of the Republic of Türkiye (CBRT) is expected to slow the pace of interest rate cuts in June, reducing the rate from 250 basis points to 150 basis points, analysts at German banking giant Deutsche Bank forecasted.

Monetary Policy Committee (MPC) meeting on Mar. 6 saw the Turkish central bank implement a 250-basis-point cut for the third consecutive month, reducing the policy rate to 42.5%.

In a note published following the decision, Deutsche Bank economist Yigit Onay and strategist Christian Wietoska projected that the easing pace would continue at a slower rate for the remainder of the year. The note also stated that the bank’s year-end inflation forecast stands at 28%.

‘Easing pace to slow down’

U.S. investment bank Morgan Stanley also expects a more gradual approach to rate cuts after June. The bank forecasts that CBRT will lower interest rates by another 250 basis points in April before slowing the pace of cuts, bringing the rate down to 30.5% by the end of the year.

A note prepared by Morgan Stanley economist Han de Kucuk highlighted a shift toward a more cautious tone in CBRT’s policy statement, suggesting that the Monetary Policy Committee (MPC) is prepared to slow the pace of rate cuts if necessary.

“Despite the downside surprise in February inflation, we believe the MPC’s emphasis on credit growth and domestic demand signals a more cautious stance,” Kucuk said.

Morgan Stanley also noted that the Turkish central bank is slowing the pace of easing to mitigate upward risks to credit and domestic demand growth while supporting the continued preference for the Turkish lira in domestic portfolios.

CBRT’s policy rate to reach 40% before the easing cycle slows down, the bank expected.