Turkish Central Bank to continue rate cuts: Experts

Türkiye's Central Bank is expected to continue cutting interest rates as inflation begins to ease, according to experts.

The bank reduced its policy rate by 250 basis points in December while aiming to maintain financial market interest in the Turkish lira, said Marek Drimal, an economist and strategist.

Drimal, lead strategist for Central and Eastern Europe, the Middle East, and Africa (CEEMEA) at Societe Generale Corporate and Investment Banking (SGCIB), told Anadolu that although further rate cuts are likely, the bank appears committed to policies that support the real appreciation of the Turkish lira through nominal weakening.

He noted that the December inflation rate of 44.38% created room for additional easing.

Drimal predicted a 250 basis point rate cut in January, which he expects will be carefully communicated to avoid sharp market reactions, such as a significant depreciation of the Turkish lira.

He also pointed to the 30% hike in the minimum wage, which could drive strong inflationary pressures in January. He anticipated Türkiye's consumer price index (CPI) to rise by 41.3% annually and 4.4% month-on-month.

Drimal noted that with the reduction in the central bank's committee meetings from 12 to eight per year, the next meeting after January will take place in March, allowing the bank to assess January and February inflation data.

Piotry Mays, senior foreign exchange analyst at In Touch Capital Markets, said that the central bank reduced its rate to 47.50% last year amid slowing inflation. As annual inflation fell to 44.38% in December, he said the monetary policy became even more restrictive.

Mays also expects a 250-basis point cut at the January meeting, bringing the policy rate to 45%.

Hans-Christian Wietoska, head of CEEMEA research at Deutsche Bank, said that the Turkish Central Bank could sustain the pace of rate cuts seen in December over the short term. While Türkiye's disinflation process is progressing, he cautioned that risks could slow the momentum.

Wietoska also expects a 250-basis point cut in January, followed by continued rate reductions through the second quarter, with the policy rate potentially reaching 40% by mid-year. However, he forecasts a slower pace of cuts after April, projecting the rate to end the year at 32.5%, in line with a gradual disinflation process.

Economists participating in an Anadolu expectations survey predicted a 250-basis point cut in January, reducing the policy rate to 45%. The average year-end policy rate forecast among respondents was 30%.