JPMorgan, Morgan Stanley delay Türkiye’s 1st interest rate cut forecast

JPMorgan has revised its forecast for the Central Bank of the Republic of Turkiye’s (CBRT) first interest rate cut, pushing it from November to January following higher-than-expected inflation data. The decision comes as several foreign institutions update their expectations for Türkiye’s monetary policy amid rising inflation pressures.

According to JPMorgan economists, including Fatih Akcelik, CBRT is now expected to implement a 250 basis point cut in January 2025 instead of November 2024. This adjustment comes after the latest inflation data showed monthly price increases exceeding market expectations.

Higher inflation shifts expectations

The Turkish Statistical Institute (TurkStat) recently reported a consumer price index (CPI) rise of 2.97% for September, compared to a market expectation of 2.2%. This follows a 2.47% increase in August, indicating that inflationary pressures remain strong, particularly in the services sector.

In light of these developments, JPMorgan has also revised its year-end inflation forecast for Türkiye, raising it from 42.5% to 43.5%. The bank has similarly adjusted its 2025 inflation outlook from 25% to 25.5%.

JPMorgan’s assessment of Turkish lira

JPMorgan’s report emphasized the Turkish lira’s depreciation as a key factor influencing inflation. The bank expects the central bank to focus more on managing lira volatility and supporting real gains in the currency’s value. Despite the delay in rate cuts, JPMorgan remains positive on the lira, citing lower volatility in comparison to long-term bonds as a likely outcome.

The bank has maintained its “overweight” recommendation on Turkish lira-denominated bonds while preferring to hedge rather than downgrade its stance.

Morgan Stanley echoes JPMorgan’s sentiment

Following the September inflation report, Morgan Stanley also adjusted its inflation expectations, raising its year-end forecast for Türkiye to 43.5%. The U.S. investment bank has stated that the likelihood of an interest rate cut in November has diminished, with economists suggesting that rate cuts are more likely to begin in early 2025 after uncertainties related to wages and pricing are resolved.

Morgan Stanley’s Hande Kucuk stated, “The September inflation data has increased the upward risks to the Central Bank’s forecasts, and given its data-dependent stance, a November rate cut now appears less likely.”

CBRT’s focus on price stability

CBRT Governor Fatih Karahan reiterated the institution’s commitment to maintaining a tight monetary policy stance until price stability is achieved. During a presentation to the Turkish Parliament, Karahan highlighted two key conditions for considering a rate cut: a consistent and lasting decline in inflation and inflation expectations converging within the predicted range.

“We believe there is still some way to go on both criteria, and therefore we will maintain our tight monetary policy stance,” Karahan said.

Both JPMorgan and Morgan Stanley expect that interest rate cuts will likely begin in 2025, as inflationary pressures are expected to ease.