Economists predict interest rate cut in December as deposit rates drop in Türkiye

Following the Central Bank of the Republic of Türkiye’s (CBRT) inflation report presentation, some economists have speculated that the first interest rate cut may come in December.

The focus has shifted to deposit interest rates, which have been notably affected by the increase in withholding tax in early November.

While short-term deposit rates still offer up to 50%, those for 3-month and longer-term deposits have decreased to as low as 35%. The monthly return on a 1 million Turkish lira deposit has dropped from₺41,665 (gross) to ₺29,165, reflecting a decline of up to ₺12,500 per month.

Inflation report, interest rate cut speculation

This week has seen significant market movement following the Central Bank’s presentation of its year-end inflation report.

CBRT Governor Fatih Karahan highlighted that inflation trends are improving, but noted that ongoing issues with rents and unprocessed food prices remain and that monetary policy cannot address these problems. This has sparked speculation that interest rate cuts may be imminent.

Could first rate cut come in December?

Prof. Dr. Hakan Kara, former Chief Economist at the CBRT, stated on social media that the Central Bank is likely to start easing interest rates in December, even if only modestly.

Orkun Godek, Deputy General Manager at Deniz Yatirim, also mentioned that the possibility of a rate cut in December is significant, suggesting that the CBRT may want to see one more data release before proceeding.

Revised inflation estimates, monetary policy outlook

CBRT has revised its 2024 year-end inflation forecast from 38% to 44% and raised its 2025 year-end estimate from 15% to 21%. Governor Karahan stressed that even if monetary easing begins, a tight monetary policy will still be in place.

Economists have interpreted this as indicating that interest rates will remain slightly above the Consumer Price Index (CPI), with rates gradually decreasing as inflation improves over time.

Deposit rates, short-term investment impact

With the Central Bank targeting a 21% inflation rate by the end of 2025, some analysts predict that the policy rate could fall to around 25% by that time.

As a result, average deposit rates in 2025 are expected to settle around 37.5%. Currently, short-term deposit rates are still high, with some offering up to 50%.

Medium-term deposit rates see a significant drop

However, medium-term deposit rates have already begun to reflect expectations of interest rate cuts, particularly for deposits with maturities of 3 months or more. The four largest banks in Turkiye have adjusted their deposit rates, with noticeable decreases:

• Akbank: Interest rates for deposits with a term of 96 days or more have dropped from 48% to 39%.
• Isbank: For deposits of 100,000 TL (approximately $2,914) or more, the rate is now 40% for a 91-day term.
• Garanti: The 3-month deposit rate has decreased to 35%.
• Yapi Kredi: For a 92-day deposit, the interest rate is 41%.

What numbers say

Given these rates, the monthly return on a 1 million Turkish lira deposit (approximately $29,145) is currently at a maximum (gross) of ₺41,665 (approximately $1,214).

However, with 3-month term deposits or the lowest offered rates, the return drops to ₺29,165 (approximately $851), representing a monthly decrease of up to ₺12,500 (approximately $364).

Bankers have pointed out that the increased withholding tax in early November could prompt Turkish lira deposit investors to shift their funds into other investment areas in the coming months.