Bank of America raises Türkiye’s inflation forecast, signals rate cut delay to 2025

Bank of America (BofA) increased its inflation projection for Türkiye, anticipating a higher-than-expected rate at the end of the year. The bank has revised its forecast from 42.2% to 43.3%, citing recent economic developments.

While maintaining its 2025 inflation estimate at 25%, the bank noted that the first interest rate cut by the Central Bank of the Republic of Türkiye (CBRT) could be postponed to the first quarter of 2025 if economic data continues to disappoint.

BofA Global Research indicated that while CBRT remains cautious, there is still a possibility of a 200 to 250 basis point rate cut in December, provided that inflation data does not surprise.

“If there are no further upward surprises in the data, a 200-250 basis point cut in December is possible. However, if the data continues to disappoint, the first rate cut may be delayed to the first quarter of next year,” the bank stated.

Cautious optimism on Türkiye’s inflation

Despite the ongoing inflationary pressures, BofA expressed cautious optimism regarding a potential slowdown in inflation during the last quarter of the year, attributing this to tighter monetary policy and weakening domestic demand.

“We are cautiously optimistic that inflation will decline in the last quarter, considering tighter monetary policy and slowing domestic demand,” BofA noted.

Deutsche Bank’s Türkiye forecast

Similarly, Deutsche Bank also revised its inflation forecasts for Türkiye, raising its 2024 year-end estimate from 42.3% to 43.9%. The bank, which initially expected CBRT to begin cutting rates in November, has now postponed its forecast to January 2025.

Deutsche Bank cited September’s core inflation, which reached a seasonally adjusted 3% –the highest in four months – as evidence of a deteriorating inflation trend.

“Given the upward surprise in September inflation, we have updated our year-end inflation estimates for 2024 and 2025 to 43.9% and 25%, respectively,” the bank stated.

Deutsche Bank anticipates a gradual decline in inflation during the fourth quarter due to a moderation in service and core goods inflation but warned that the slower-than-expected reduction might prompt CBRT to maintain a cautious stance.

“We now expect CBRT to begin its easing cycle in January 2025, with an initial rate cut of 250 basis points to bring interest rates to 47.5%,” the bank added.