Markets price in July rate cut as Turkey inflation outlook improves
Agencies
Inflation in Turkey is projected to drop below 30% by the end of the year, while the country's central bank is expected to return to rate cuts as of next month, a latest survey showed on Monday.
Markets are forecasting inflation cooling to 29.86% by the end of 2025, according to the Survey of Market Participants for June by the Central Bank of the Republic of Turkey (CBRT).
That is down from 30.35% in the previous month's
survey.
Aggressive monetary tightening since mid-2023, combined with favorable energy prices, has helped reduce Turkey's annual inflation rate by half over the past year.
The inflation lastly dipped to 35.4% in May, compared to around 75% a year ago.
The central bank has repeatedly cited expectations as one factor determining the course of its monetary policy.
The bank last month maintained its year-end mid-point estimate for the consumer price index (CPI) at 24%, with an upper band of 29%. Turkish officials continue to emphasize that inflation will remain within this forecast band.
Treasury and Finance Minister Mehmet Şimşek on Thursday cited stickiness in services inflation, which he said was preventing further improvement in headline CPI.
Still, Şimşek said inflation could end the year in the 20s, stressing a steep fall in basic goods prices.
The CBRT pivoted to raising its key policy rate by 350 basis points this April to 46% and pushed the overnight lending rate to 49% after Turkish assets and the lira fell sharply after Istanbul Mayor Ekrem Imamoğlu was jailed pending trial over graft charges.
Before that, the bank had begun an easing cycle and gradually cut its one-week repo rate to 42.5% in March as inflation fell from the level of more than 75% that it reached in May 2024.
The sharper-than-anticipated slowdown in inflation last month has reignited speculation that the bank could resume rate cuts soon.
Markets see inflation 12 months from now falling to 24.56%, the CBRT survey showed. That is down from 25.06% in the previous survey.
The 24-month-ahead forecast eased to 17.35%, down from 17.77%, the bank said.
Market participants expect the central bank to keep its benchmark one-week repo rate unchanged this Thursday but project a three percentage point cut in July.
They see the rate falling to around 40% in September before ending the year at around 36%. A year from now, the key policy rate is estimated to be around 29%.
Survey participants now expect the lira/dollar exchange rate to be 43.57 by the end of 2024, slightly below the previous forecast of 43.70.
However, the 12-month ahead forecast for the exchange rate increased to 47.04, up from 46.62 in the last survey period.
The Survey of Market Participants is conducted monthly. The panel consists of 72 participants, 54 of whom are experts in the financial sector and 18 of whom are experts in the real sector.
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