Cut or pass?: Markets await CBRT's last 2024 rate-setting meeting
The entrance sign of the building housing the Central Bank of the Republic of Türkiye (CBRT), Ankara, Türkiye, Sept. 24. 2022. (Reuters Photo)


Türkiye's central bank is set to likely lower interest rates for the first time after eight months of steady policy, several polls indicated recently although forecasts on the size of potential cut varied.

The size of the first cut ranged from 100 basis points (bp) to 250 bp, the polls suggested, as most economists opined the Central Bank of the Republic of Türkiye (CBRT) would opt to kick off easing this month.

To tackle soaring inflation, the central bank has raised its policy rate by 4,150 basis points in total since mid-2023 through March this year.

The last monetary policy committee meeting of the year will be held on Thursday to announce the bank's decision on interest rates as markets await a possible cut.

The CBRT in its meeting last month said the tight monetary stance "will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range."

Yet, in a potential sign of easing it indicated that the level of the policy rate will be determined "in a way to ensure the tightness required by the projected disinflation path, taking into account both realized and expected inflation."

This was highly read as a signal to begin easing this month despite a continued albeit slower decline in inflation last month.

Fourteen of 17 poll respondents in a recent Reuters poll forecast that the bank would cut its policy rate on Thursday. At the same time, three respondents expect it to keep rates on hold until the first quarter.

Differing on the size of the potential cut, five economists said they expected the first rate cut to be 150 basis points from the current 50% while five others see a 250 basis point easing this week.

Two institutions expected the policy rate to be cut by 100 basis points while two forecast an easing of 200 basis points, according to the poll.

Easing cycle could start

This highly correlated to expectations of the U.S. financial giant Morgan Stanley, which on Dec. 19 said that "in a view of the CBRT's recent communication" it expected rate cuts to start with 200 basis points but see risks "skewed for a smaller cut."

Citi said in a recent research note that an expected normalization in unprocessed food prices and the central bank's latest communication suggests the easing cycle could start at the final meeting of the year.

"The combination of growing evidence of an economic slowdown and historically tight financial conditions faced by bank-dependent borrowers also lends support to our view that a 250bp cut in December is likely. However, we concur that a less aggressive easing cannot be entirely ruled out."

November inflation came in at 47.09% annually, slowing from the peak of around 75% in May while monthly, it rose 2.24% on the back of unprocessed food prices.

The central bank is monitoring monthly inflation closely as it decides when to cut its main interest rate.

The expectations on the rate cut also coincide with talks on the minimum wage hike for next year, which could also reflect on inflation in the first months of the year.

Some economists as well as the International Monetary Fund (IMF) have earlier suggested the need to avoid a bumper rise in wages to avoid stirring inflation in the period when it began to decline. The amount of minimum wage increase is also expected to be announced this week.

Meanwhile, economists polled by Anadolu Agency (AA) similarly anticipated the bank would slash rates, with 150 basis points to 48.5% in a poll shared on Friday.

Ten out of 14 economists surveyed forecast a decline from the meeting, ranging between 47.50% and 50%, while four said they expected no change.

The average of economists' 2025 year-end policy rate expectations was 29.5%.

Similarly, the Reuters poll median indicated policy could stand at 28.5% by the end of the next year as inflation started to decline.

Forecasts ranged between 25% and 33%, in the poll.

Moreover, the poll of private broadcaster Bloomberg HT expected the CBRT would lower rates by 150 basis points on Thursday. It said that 18 of 22 institutions expected easing starting this month, while four expected it in January.

On the other hand, some financial institutions, including one of the major lenders in the country, Garanti BBVA, as well as the head of the top business association the Independent Industrialists and Businessmen’s Association (MÜSIAD), Mahmut Asmalı, said they expected the first rate cut this month.

The rate decision of CBRT also follows recent cuts by the Federal Reserve (Fed) in the U.S. and the European Central Bank (ECB).

The Turkish central bank expects inflation to fall to 21% by the end of 2025, according to its projections in the last quarterly report.

The bank will announce its rate decision at 11 a.m. GMT (2 p.m. local time) on Dec. 26.