A report issued by Bloomberg stated that the Turkish Central Bank is preparing to implement its first interest rate cut in nearly two years, amid division among analysts over the size of the expected cut.
The main interest rate, the one-week repo rate, is expected to be reduced from 50% to 48.25%, according to the average estimate in a survey conducted by the agency.
Mixed expectations and caution among investors
In the absence of clear guidance from the central bank, expectations varied among financial institutions, according to what Bloomberg monitored.
JPMorgan Chase and Deutsche Bank expect a cut of 150 basis points, while Citigroup and Bank of America expect a cut of 250 basis points.
Some officials indicated the need for caution to avoid negative reactions from investors who might consider these moves “aggressive.”
Inflation and supplementary measures
Despite expectations of lowering interest rates, some institutions, such as Goldman Sachs, believe that it may be too early for this decision due to the continued high rates of inflation and loan growth. Goldman Sachs said that the bank may keep the interest rate unchanged for the ninth time in a row.
However, Central Bank Governor Fatih Karahan expressed in previous statements the slowdown in inflation in demand and services, and this strengthened the markets’ expectations of a rate cut.
In addition, analysts from Deutsche Bank indicated that the bank may take complementary measures such as narrowing the “interest rate band”, a move that may be considered a positive signal for investors.
Currently, the spread between the overnight lending and borrowing rates is 600 basis points, which is a wide range that the market prefers to narrow to improve future expectations.
Wage increases and their effects
In another context, the Turkish government announced that it would raise the minimum wage by 30% in 2025, which the markets considered a positive step to support the efforts of the Central Bank, according to Bloomberg.
However, more than a third of Turkey’s workforce earns the minimum wage, making controlling inflation an ongoing challenge.
According to Central Bank estimates, the annual inflation rate is expected to reach 44% by the end of this year, and decrease to 21% by the end of 2025.
Despite this expected decline, the current inflation rate of 47.1% is still a long way from the official target of 5%.
Prospects of rate cuts
Bloomberg Economics forecasts indicate that the Turkish Central Bank may continue to reduce interest rates at its upcoming monthly meetings, with the aim of reaching a rate of 25% by the end of 2025.
Despite the positive indicators of some government measures, challenges still remain, according to the agency’s estimates, including high inflation and the potential effects of lowering interest rates on financial stability.
Investors are awaiting the next central bank decision and its impact on the Turkish economy in light of the current circumstances.
