Türkiye's central bank has room to cut interest rates by as much as 800 basis points this year, according to Hakan Aran, the chief executive of Işbank, the country's largest private lender.
Aran's remarks come after the Central Bank of the Republic of Türkiye (CBRT) returned to a rate-cutting cycle last month that was disrupted by political turmoil earlier this year.
The bank lowered its one-week repo rate by 300 basis points to 43%, as inflation continued to slow under a tighter policy framework.
"A decline in the policy rate to around 35% by year-end would mean entering the next year with a real interest rate of approximately 6 percentage points," Aran told an interview with Anadolu Agency (AA) on Monday.
"Whether this entire space will actually be utilized or not, and how it will be evaluated, will naturally depend on data and developments. However, what gives me the impression that it will be used is the strong increase in reserves and the contraction in industrial activity," Aran said.
The CBRT had hiked the one-week repo rate to 46% from 42.5% in April and lifted its overnight lending rates to 49% following market volatility over the arrest in March of Istanbul Mayor Ekrem Imamoğlu.
Imamoğlu was jailed pending trial over graft charges.
Before April, the CBRT had gradually cut the rate from December as inflation eased.
Latest official data showed inflation slowed to 33.5% in July, the lowest rate since November 2021, having peaked at 75% in May last year.
Aran projected year-end inflation in the 28.5-29.5% range, assuming no extraordinary shocks in food or energy prices.
He also highlighted what he said were the credibility gains after the central bank separated its official inflation target from its forecasts last month, calling the approach "a valuable step that strengthens governance, accountability and predictability."
The bank kept its inflation target for this year at 24%, even though it is forecasting inflation of between 25% and 29%.
Previously, the bank presented the target as the midpoint of the forecast range. Separating the goal and the range could give markets a clearer indication of where policy might be heading.
The bank is aiming to cut inflation to 16% by the end of next year and 9% by end-2027, according to its estimates.
Aran said both corporate and small- and medium-sized enterprise (SME) lending trends were consistent with inflation expectations and did not pose a risk to the central bank's disinflation path.
"There is no credit expansion table that should worry the central bank," he noted.
Aran stated that the interruption in the rate-cutting cycle this year effectively served as a stress test for the banking sector, placing significant pressure on profitability and net interest margins. He noted that the impact was clearly reflected in banks' second quarter financial statements.
If the relaunched easing cycle continues uninterrupted through year-end, the sector could close the year with a return on equity (ROE) in the range of 20% to 25%, he noted.
"An annual inflation rate of 29% alongside a 25% ROE may technically imply a real erosion of equity, but considering the level we've reached and the sacrifices made across the board, including by the real sector, I believe this is an acceptable and reasonable outcome," he said.
"Interest rate cuts will allow both the real economy and the financial sector to end the year with profitability at least close to the inflation rate. This suggests we are on track for a soft landing within a tight monetary policy framework."
On global dynamics, Aran said tariff wars, shifting trade balances and China's role in global commerce would weigh heavily on Türkiye's export competitiveness, particularly in Europe.
He warned that the next two years would be "critical" and require close monitoring of global developments as well as a stronger focus on productivity at home.
Regarding U.S. policy, Aran said he expected the Federal Reserve (Fed) to cut rates in September and again in December.
"Given the volatility in the U.S. economy, any shift there affects the whole world," he said, stressing that Türkiye must remain disciplined and shield itself with "safety buffers" against global shocks.
While underscoring risks from external factors such as energy and food prices, climate-related pressures and geopolitical tensions, Aran said unexpected developments could cause Türkiye to deviate from its inflation targets.
"There are factors within our control, and there are global factors beyond it. Adverse developments in global food prices and climate-related disruptions are issues we cannot influence directly. When we move in sync with the rest of the world, we are affected by these challenges in the same way and miss out on opportunities equally.
"I believe we will face these shared pressures together with other emerging economies. What matters most is staying committed to the targets and policies we've set domestically."
Aran's remarks came as the first national bank of the Republic of Türkiye celebrates its 101st anniversary on Tuesday.
Işbank was founded on Aug. 26, 1924, under the directive of modern Türkiye's founder, Mustafa Kemal Atatürk, to support economic independence and development in the early years of the republic.
