Slowing inflation strengthens case for rate cut this week

ANKARA

Türkiye’s Central Bank is widely expected to begin a monetary easing cycle at its upcoming Monetary Policy Committee (MPC) meeting on July 24, as inflation continues to moderate.

According to the latest survey conducted by AA Finans, most analysts expect the bank to lower its benchmark interest rate at the upcoming Monetary Policy Committee (MPC) meeting on July 24, with the median forecast pointing to a 250 basis-point cut, bringing the policy rate down to 43.5 percent.

This growing expectation comes on the heels of the bank’s June 19 decision to hold the policy rate steady at 46 percent, maintaining a cautious stance amid ongoing disinflation.

Recent data from the Turkish Statistical Institute (TÜİK) showed that annual inflation eased to 35.05 percent in June, down from 35.41 percent in May, marking the lowest level since November 2021.

The moderation in consumer prices has strengthened the case for monetary easing.

In remarks made earlier this month, top executives from Türkiye’s leading banks expressed expectations for an easing cycle beginning in July.

Garanti BBVA CEO Mahmut Akten projected the year-end policy rate to decline to 36 percent and predicted a 300 bps cut at this week’s MPC meeting.

In an interview with CNBC-e, Ziraat Bankası CEO Alpaslan Çakar echoed the sentiment, stating that a “meaningful rate cut” is likely in July.

İş Bankası CEO Hakan Aran offered the most aggressive forecast, anticipating a 350 basis-point reduction.

Likewise, JP Morgan and Morgan Stanley have both revised their projections in light of the inflation trend. Morgan Stanley suggests that the Central Bank may initiate a series of rate cuts starting in July, with a total reduction of 1,000 basis points expected by year-end, bringing the rate to 36 percent.

The bank cites declining inflation, improved net reserves, and easing market conditions as key drivers behind its forecast.

JP Morgan echoes this sentiment, noting that the disinflation process appears to be gaining traction and that the Central Bank is likely to respond with a measured easing cycle.

Both institutions emphasize that the Central Bank’s actions will be closely tied to inflation expectations and the broader macroeconomic outlook.

The AA Finans survey reflects a similar consensus among domestic economists.

Of the 21 participants, 11 expect a 250 basis-point cut, while others foresee deeper reductions of up to 350 basis points. The year-end policy rate is projected to settle around 35 percent, suggesting a sustained easing trajectory through the second half of 2025.

With no MPC meeting scheduled for August, the July decision is seen as pivotal for Türkiye’s monetary trajectory in the second half of 2025.