Morgan Stanley anticipates Central Bank of Türkiye rate cuts in December

Morgan Stanley predicts that the Central Bank of the Republic of Türkiye (CBRT) will begin rate cuts with a 200-basis-point reduction at its December meeting, bringing the policy rate to 48%.

Additional cuts projected through Q1 2025

Morgan Stanley’s latest report suggests further rate cuts may follow, with two additional 200-basis-point reductions expected by the end of Q1 2025.

This would bring the policy rate to 44% by March. The report also estimates headline inflation will decrease to 39% by the same period.

“We think a 200 bps rate cut in December followed by two more 200 bps cuts by 1Q25 to reach a policy rate of 44% in March would be consistent with this guidance,” Morgan Stanley said.

“This is because we see headline inflation easing to 39% by March – implying an ex-post real policy rate average of about a percentage point in the first quarter of 2025. Whether these levels of the real rate are tight enough will be determined by future data.” report noted.

“After a 200-basis-point cut in December, reaching a policy rate of 44% by March aligns with this trajectory. However, whether this level of real rates is sufficiently tight will depend on forthcoming data,” the report noted.

Minimum wage increases could impact monetary policy

Uncertainty surrounding Türkiye’s minimum wage adjustments for 2025 adds complexity to CBRT’s monetary decisions. Morgan Stanley economists highlighted that a wage hike in the range of 30-35% is expected.

A significant minimum wage hike would likely impact inflation, potentially narrowing the Central Bank’s room for monetary easing. Morgan Stanley estimates that a 10-percentage-point higher wage increase could add 2-2.5 percentage points to inflation forecasts.