Türkiye | The CBRT stresses importance of expectations

The Central Bank (CBRT) kept the policy rate at 50% in line with the expectations. They repeat their commitment to support monetary transmission mechanism via additional macro-prudential measures if needed.

Key points

• Key points:
• On inflation, the CBRT assesses domestic demand as slowing down and reducing its inflationary impact, which they previously evaluated as inflationary. They seem encouraged by the decline in goods inflation as expected via monetary tightening. Yet, they repeat inflationary risks from services inflation, inflation expectations, and geopolitics but this time eliminate risks from food inflation.
• They highlight the high level and stickiness of services inflation and emphasize that the alignment of inflation expectations and pricing behavior with projections has gained relative importance for the disinflation process.
• They maintain a wait and see approach with their hawkish message on a potential tightening in case a significant and persistent deterioration in inflation trend is observed.
• We forecast monthly inflation trend to remain closer to 3% in August and then decline to 1.5-2% in 4Q24 and finish the year annually at about the upper bound of the CBRT forecast range of 42%.
• We now evaluate risks on our limited policy rate cut expectations in 4Q24 become neutral, given the increasing likelihood of looser external financial conditions in the near term and the most recent faster than expected adjustment in economic activity.

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