The Turkish central bank is expected to leave its key interest rate steady at 50% during its monetary committee meeting next week, surveys indicated, even though annual inflation began to decline.
All 17 respondents in a Reuters poll on Wednesday expected the bank to keep its policy rate on hold in August.
Similarly, the institutions participating in the private broadcaster Bloomberg HT survey published on Thursday predicted that the Central Bank of the Republic of Türkiye (CBRT) will keep the policy rate constant at 50% in the meeting on Aug. 20.
The CBRT raised its policy rate by 500 basis points to 50% in March, citing deterioration in the inflation outlook. It has kept the benchmark rate steady for four months since then while vowing to act if the inflation outlook worsens.
The bank has gradually lifted its policy rate by 4,150 basis points in a tightening cycle since June last year after a major shift in the economic policy following presidential and parliamentary elections.
With further falls in inflation expected, the central bank is expected to start cutting the policy rate later this year or early in 2025, according to economists.
The median estimate of 14 economists in the Reuters poll saw the one-week repo rate standing at 45% at the end of this year. Forecasts ranged from 40% to 50%. Four economists expect the first policy rate cut decision in October, while another four expect it to happen in November.
Two economists expect the rate to be kept on hold until December, while five economists expect the first policy rate easing to occur in the first quarter of next year.
Yet, no significant easing was expected to come until next year, according to another poll conducted last month. The central bank was forecast to have reduced rates by nearly half, or 2,250 basis points, to 27.50% by the end of 2025.
On the other hand, the market's estimate for the policy rate at the end of 2024 in the poll by Bloomberg HT was 47.50% in the survey conducted with the participation of 27 institutions in August. The highest expectation in the 2024 year-end interest rate estimates was recorded at 50%, while the lowest expectation was at 40%.
Last week, during an inflation report presentation, CBRT Governor Fatih Karahan vowed to maintain a tight monetary policy stance while maintaining end-2024 and end-2025 inflation forecasts at 38% and 14%, respectively.
Late last month, Deputy Governor Cevdet Akçay said in an interview the bank was not contemplating a rate-cutting cycle currently, as premature easing might reignite inflation and prolong economic difficulties amid signs of disinflation.
Annual inflation fell to 61.78% in July, in what is expected to be a sustained drop with the impact of tight policy and a slowdown in domestic demand after peaking in May.
Morgan Stanley said it expects the policy rate to be maintained for the remainder of the year as an increase in geopolitical risks and volatility in global markets is seen, resulting in rates being held higher for longer.
"Relatively stable FX since the end of March and the ongoing slowdown in domestic demand should support a decline in the underlying inflation trend," the bank said in a research note.
"Risks related to relative price adjustments ... pricing behavior in services subgroups, as well as elevated inflation expectations do not leave much room for easing ... Given ongoing risks around the pace of disinflation, we continue to expect the first rate cut in February."
The bank will announce its interest rate decision at 1100 GMT (2 p.m. local time) on Aug. 20.