Morgan Stanley, JP Morgan point to December as Turkish central bank eyes interest rate cuts

Turkish central bank could start a cycle of interest rate cuts by December, according to U.S. banks Morgan Stanley and JPMorgan whose analysts predicted Friday that the central bank would begin with a 200 basis point cut and continue the trend in 2025.

The Central Bank of the Republic of Türkiye (CBRT) on Thursday kept its policy rate unchanged at 50% for the eighth month in a row. However, the bank has also adopted a softer tone on the inflation outlook in November compared to its previous statements and offered indirect guidance on real interest rates.

Economists had predicted that interest rate cuts would begin in early 2025. The timetable has now moved up to December, according to Morgan Stanley and JPMorgan based on the central bank’s recent comments.

The updated timetable also follows remarks of Fatih Karahan, the central bank’s governor, who at the last inflation report meeting had said that the current interest rate level implies a tighter stance in line with the decline in inflation and expectations.

Morgan Stanley noted that the underlying trend in inflation started to decline in October, the slowdown in domestic demand reached disinflation levels and signs of improvement were seen in services inflation. It also pointed out that in the central bank’s latest statement, expressions of uncertainty regarding the pace of inflation recovery that were present in previous texts were removed.

Morgan Stanley also predicted a minimum wage increase of around 30% and energy price increases of 25%, in line with the CBRT’s 26% inflation target for end-2025.

Deutsche Bank also concurred with Morgan Stanley and JPMorgan on December rate cuts while Goldman Sachs and UBS maintained their January forecast for the cycle to begin.