What’s next for Türkiye’s interest rates, dollar exchange rate?
A logo of Türkiye's Central Bank (CBRT) is pictured at the entrance of the bank's headquarters in Ankara, Türkiye April 19, 2015. (Reuters Photo)
In the ongoing economic rebalancing process, Türkiye is witnessing a decline in inflation and the current account deficit, a stable single-digit unemployment rate, and a slowdown in real sector activity.
Expectations of interest rate cuts are rising, while questions about the potential increase in the dollar’s value are also intensifying.
The Central Bank of the Republic of Türkiye (CBRT) has reaffirmed its commitment to maintaining a tight monetary stance, indicating that the earliest potential rate cut could come in September.
Notably, foreign analysts predict the dollar might reach ₺36.00 by year-end.
Inflation, current account deficit
Recent data signals that Türkiye’s economic rebalancing is yielding positive results. The latest June Consumer Price Index (CPI) figures significantly undershot expectations, indicating progress in the fight against inflation.
While March, April and May CPI figures exceeded 3% monthly, June saw a substantial drop to 1.64% against the market expectation of 2.2%.
Persistent sectoral challenges
Despite the overall decline in inflation, certain sectors, such as “Restaurants and Hotels,” “Education,” and “Housing Expenditures,” continued to see CPI figures above 3% monthly, highlighting persistent challenges in specific areas.
Employment, real sector activity
One of the key indicators tracked during this period of tight monetary policy is unemployment.
The latest data from April shows a slight decrease in the unemployment rate, from 8.6% to 8.5%. However, industrial production fell by 4.9% in April, and the Istanbul Chamber of Industry (ISO) Türkiye Manufacturing PMI Index remained just below the 50 threshold in both April and May, indicating a cooling in real sector activities.
Improvement in current account balance
Policies implemented have positively impacted the current account balance. The annual current account deficit, which stood at $57.8 billion in April of the previous year, has decreased to $31.5 billion in April this year.
This improvement, alongside signs of a slowdown in the real sector, has fueled expectations of interest rate cuts.
However, the CBRT has reiterated its commitment to a tight monetary stance for now.
Anticipated interest rate cuts
The timing of the Central Bank’s interest rate cuts is a topic of much speculation. The earliest anticipated rate cut is expected in September, though some analysts predict it may occur in November or the first quarter of 2025.
Goldman Sachs forecasts a cut by the end of the third quarter, JP Morgan in November, and Morgan Stanley and Barclays in 2025.
Dollar projections for year-end
Speculation about the dollar’s value at the year’s end is also growing.
- Fitch’s Türkiye Analyst Morales: ₺36.00 by year-end
- HSBC, JP Morgan, and BNP Paribas: ₺36.00 by year-end
- Bank of America: ₺38.00 by year-end
- Latest TCMB survey: ₺37.75
Even with a movement toward ₺36.00, this suggests only a 10% increase over the current prices in the next six months.
