Foreign banks expect rate cut from Turkish central bank in November

The Central Bank of the Republic of Türkiye (CBRT) maintained its policy rate at 50% during this week’s Monetary Policy Committee (PPK) meeting, as anticipated by the market. However, a subtle change in the PPK statement’s wording has prompted foreign financial institutions to reassess their predictions for future interest rate reductions.

Instead of its previous commitment to tighten policy in response to inflationary pressures, the CBRT stated it would “use monetary policy tools effectively,” indicating a potential softening in its stance. This change has led to speculation among economists that rate cuts could come sooner than previously anticipated.

Morgan Stanley revises expectations

Before the meeting, Morgan Stanley economist Hande Kucuk had forecast no rate cuts throughout 2024. Following the change in tone from the central bank, Kucuk now believes that the CBRT might begin easing monetary policy earlier than initially expected, suggesting that the shift signals a reduction in the tightening bias.

Goldman Sachs and Citi predict November cuts

Goldman Sachs economists Clemens Grafe and Basak Edizgil also adjusted their outlook, suggesting that the first rate cut could happen in November, slightly later than their initial prediction. They noted that a slowdown in domestic demand through September and October could ease inflationary pressures enough for the CBRT to initiate a 100 basis point cut in November.

Citi’s economist Ilker Domac echoed this sentiment, stating in a note that the CBRT is likely to remain on hold until November, after which it may reduce the policy rate to 45% by year’s end.

Turkish bank also predict rate cuts in November

Turkish banks expected to face significant challenges throughout the next year as the country continues its economic turnaround, according to the CEO of Isbank Hakan Aran. IsBank is Türkiye’s largest private bank by assets.

Recently Is Bank CEO Hakan Aran also warned that Türkiye’s economic challenges will persist into 2025, despite potential easing in some areas. He anticipates a 250 basis point rate cut from the Turkish central bank in November, as the country continues to grapple with high inflation and global economic pressures. Aran also highlighted concerns over the deteriorating asset quality in the banking sector and the need for long-term structural reforms to stabilize the economy.