Türkiye | Bolder start to the easing cycle

The Central Bank (CBRT) lowered the policy rate by 250bps to 47.5%, beating the market expectations of 150-200bps cut (vs. our 100bps cut call), but with a narrowed down symmetric interest rate corridor of 150bps from 300bps. The distribution of the meeting dates will be key to see how the real rates will evolve.

Key points

• Key points:
• In the monetary policy framework of 2025, the CBRT reduced the number of meetings in 2025 to 8 from 12 and already signaled that they can start easing with a bolder move since they now gain room to have a scheduled wait & see time.
• In today’s MPC decision, the CBRT seems to feel more comfortable about the inflation outlook, most likely following the decision on the minimum wage hike of 30%. Yet, there are still uncertainties about the start of the year administrative price hikes and tax adjustments and how the monthly inflation trend will move up in early 2025.
• In this regard, the CBRT gives the commitment to react prudently on a meeting-by-meeting basis with a focus on the inflation outlook and to use monetary policy tools effectively in case a significant and persistent deterioration in inflation is foreseen.
• The CBRT also aims to simplify deposit rules and finalize the KKM deposits in 2025. Therefore, it will be essential to provide adequate real returns requiring the policy rate to remain sufficiently above the inflation to contain the dollarization tendency of residents, particularly the households.
• We stay cautious at our funding rate expectation of 31% for 2025 year end and also expect the CBRT to maintain credit growth caps as long as needed to support normalization in domestic demand. We will revise the path of our rate projections once we understand the distribution of the scheduled meetings for next year.

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