Global banking giants, including JPMorgan and Morgan Stanley, expect Türkiye’s central bank to scale back a potential interest rate cut next week after a higher-than-expected inflation reading Wednesday.
Both Wall Street banks now anticipate that the Central Bank of the Republic of Türkiye (CBRT) will opt for a 200 basis-point cut, following a 300-point reduction at its last meeting in July. This marks a downward revision from earlier expectations of a 300-point cut.
Official data showed inflation at nearly 33% annually and more than 2% monthly, following also strong economic growth of 4.8% in the second quarter. Economists now assume the bank may consider a smaller cut, despite earlier projections that it would continue reductions of the same magnitude through the end of the year.
The central bank returned to easing by cutting its main one-week repo rate by 300 basis points to 43% at its last meeting, after hiking rates in April in response to brief market volatility following the arrest of Istanbul Mayor Ekrem Imamoğlu.
JPMorgan said it now sees upside risks to its year-end inflation forecast of 29.5%, citing a reversal in earlier food price declines and strong domestic demand. The bank expects inflation to rise to 31.8% year-on-year in September, partly driven by back-to-school services repricing. Turkish officials have also noted that while disinflation continued, drought and frost affected food prices in August.
The central bank "is likely to keep the policy rate well above headline CPI inflation to prevent dollarization among Turkish residents," JPMorgan said in a research note.
Meanwhile, Barclays economist Ercan Ergüzel said that despite the inflation surprise in August, the bank still expects an interest rate cut at the next meeting, projecting a 250-point reduction.
JPMorgan also forecasts further 200-point reductions in October and December, which would bring the policy rate to 37% by year-end, slightly above its earlier estimate of 36%.
The central bank is scheduled to hold its policy meeting next Thursday.
