Morgan Stanley expects 250 basis point rate cut from Turkish central bank in January

Morgan Stanley, an American multinational investment bank and financial services company, anticipates a 250 basis point interest rate cut by the Central Bank of the Republic of Türkiye (CBRT) in January, following December’s inflation data and improving trends in core and services inflation.

Inflation trends support rate-cut expectations for Türkiye

Morgan Stanley economist Hande Kucuk noted in a report that core inflation trends and improvements in service inflation support the expectation of a monetary policy adjustment.

While the bank expects monthly inflation to rise in January and February, it forecasts annual headline inflation to continue its downward trajectory, reaching around 38% by March.

2024 and 2025 inflation projections remain unchanged

Morgan Stanley maintained its inflation forecast of 26% for 2024 and a policy interest rate of 28.5% by the end of 2025.

The report emphasized that Türkiye’s tight monetary stance would help contain the secondary effects of wage and price increases in the new year.

“The continuation of tight monetary policy will limit secondary effects from wage and price adjustments and allow the central bank to align real interest rates with both current and expected inflation declines,” the report stated.

December inflation data below expectations

Türkiye’s Statistical Institute (TurkStat) reported annual inflation at 44.38% for 2024.

Morgan Stanley interpreted December’s inflation results as an indicator supporting a potential interest rate cut in January.