Analysts see Central Bank easing at a slower pace after inflation data
ANKARA
After August inflation came in above forecasts, analysts are revising down their expectations for the size of the Central Bank’s rate cut at next week’s policy meeting.
Annual inflation eased to 32.95 percent last month despite a sharper-than-expected monthly rise of 2.04 percent, driven largely by surging food and services prices.
The Central Bank will hold its next Monetary Policy Committee (MPC) meeting on Sep. 11, with markets now scaling back expectations for a large rate cut.
JPMorgan said on Sept. 3 that it now expects the Central Bank to lower its benchmark one-week repo rate by 200 basis points next week — down from its earlier forecast of 300 basis points — citing the upside surprise in inflation and ongoing political uncertainty.
It argued that the Central Bank is likely to keep the policy rate well above headline CPI inflation to prevent dollarization among Turkish residents.
The Wall Street lender also projects two further 200-basis-point cuts in October and December, which would bring the policy rate to 37 percent by year-end, slightly above its previous 36 percent forecast.
The Central Bank on July 24 reduced the policy rate from 46 percent to 43 percent.
ING highlighted the political backdrop, noting that the MPC meeting comes just four days before the opposition Republican People’s Party (CHP) congress lawsuit, adding a layer of sensitivity to the decision-making process.
The Dutch bank said the combination of August’s inflation figures and the political developments is likely to complicate the Central Bank’s policy stance.
It added that foreign exchange demand will be a key factor in determining the size of any rate cut, alongside inflation dynamics.
“Taken together, these factors point to a less aggressive easing this month than previously anticipated, in our view,” it said.
