Interest rate message from Central Bank Governor Fatih Karahan: 'We are monitoring carefully'

Turkey's economic management has intensified its international investor outreach, this time in London. Treasury and Finance Minister Mehmet Şimşek met with investors over two days as part of the Islamic Finance Summit, organized in cooperation with the Participation Banks Association of Turkey and UK Export Finance.

Following these contacts, Central Bank of the Republic of Turkey (TCMB) Governor Fatih Karahan also held critical meetings with investors behind closed doors.

At the top of the messages Karahan delivered during the meetings in London was a cautious approach to interest rate cuts. According to information obtained, Karahan stated that the deposit trends of local savers are an important indicator in policy decisions.

Investors who attended the closed-door meetings and requested anonymity stated that the TCMB is maintaining a prudent line regarding interest rate decisions. According to participants, Karahan and his team conveyed the message that "an interest rate cut is possible, but market balances and TL savings behaviors must be taken into account."

JULY 24 EXPECTATIONS: IS A CUT ON THE WAY?

The Monetary Policy Committee (PPK) meeting to be held by the Central Bank on July 24 is being awaited with curiosity. Some analysts predict that an interest rate cut could be made at this meeting due to lower-than-expected inflation data and reduced market pressure. However, uncertainties regarding the magnitude of the cut persist.

WITHHOLDING TAX INCREASE CHANGED THE BALANCES

One of the significant developments complicating interest rate cut expectations was the increase in withholding tax rates applied to Turkish Lira (TL) deposits and investment funds last week. This step raised questions in the markets such as, "Is this a signal for an interest rate cut, or an effort to correct savings behaviors?"

BLOOMBERG: “THERE IS A RISK OF FLIGHT TO FOREIGN CURRENCY”

An analysis in Bloomberg News stated that Turkey's increase in taxes on TL assets could complicate the Central Bank's de-dollarization policy. The report included the following statements:

“Higher taxes on lira instruments could drive savers toward foreign currency-denominated assets. This could create new risks for inflation.”

ANALYSTS EXPECT A 2.5-3.5 POINT CUT

The Central Bank, which kept interest rates steady at 46 percent in June, had signaled an interest rate cut for the first time in its decision text. The majority of analysts assess that a cut of 2.5 to 3.5 points is on the table for the July 24 meeting.