Turkish central bank expected to slash interest rates by 250-basis-points in January

The Turkish market anticipates a 250-basis-point rate cut from the Central Bank of the Republic of Türkiye (CBRT), following a decline in annual inflation for December, according to CBRT’s latest research.

The January 2025 Market Participants Survey, released by the CBRT on Friday, highlighted an improved macroeconomic outlook, supported by the disinflation program and expectations of a gradual easing of monetary policy.

Out of 68 respondents, including 52 financial and 16 real-sector representatives, the survey revealed that the current policy rate expectation for the end of January stands at 45%. This figure is expected to decrease to 40.91% over the next three months, with a further decline to 29.14% over the next 12 months, compared to the previous estimate of 30.88%.

• The consumer price index (CPI) inflation expectation for January rose slightly from 4% in the previous survey to 4.07%.
• The 12-month ahead CPI projection dropped from 27.07% to 25.38%, while the 24-month forecast decreased from 18.47% to 17.72%.
• The projected year-end current account deficit was revised down from $18 billion to $17.4 billion, while the 2026 estimate is now $22.5 billion.
• The year-end USD/TRY forecast fell from 43.2299 to 43.0265, whereas the 12-month forward projection rose slightly to 43.8140.

Supply-side measures with easing interest rates

Commenting on the survey results in a post on X, Minister of Treasury and Finance Mehmet Simsek emphasized the continued improvement in inflation expectations, noting that the 12-month forward inflation forecast has been declining for 15 consecutive months.

Simsek stated that annual inflation decreased by 20 percentage points in 2024, adding, “We will complement our demand-side policies with supply-side measures in critical sectors such as food, housing, and energy to combat inflation.”

On Dec. 26, the CBRT implemented its first interest rate cut since Feb. 23, 2023, reducing the rate from 50% to 47.5% with a 250-basis-point cut, after holding the rate steady for eight consecutive months.

On the other hand, Türkiye’s annual inflation ended the year at 44.38% in December, according to Turkish Statistical Institute (TurkStat).