HSBC assessment on Turkey: Markets focused on interest rate cuts extending into 2027

HSBC strategists stated in an assessment published regarding the Central Bank of the Republic of Turkey (TCMB) that markets have largely priced in expectations for a limited interest rate cut by the end of the year.

The report, signed by Ali Çakıroğlu, Shubham Sharma, and Tolga Ediz, stated that it is considered likely that the TCMB will implement a total of 200 basis points in cuts to the one-week repo rate by the end of the year. The strategists noted that market pricing currently points to approximately 150 basis points of easing.

According to the report, the more critical issue for the markets is the extent to which the interest rate cut cycle will carry over into next year. HSBC emphasized that current pricing points to a more limited easing path when compared to previous cycles and economist expectations.

The assessment noted that markets are pricing in approximately 300 basis points of cuts throughout the entire cycle. It was reported that this outlook suggests the one-week repo rate will remain at the 34 percent level; this presents a more cautious picture when compared to Bloomberg's forecast of 28 percent and HSBC economists' forecast of 21 percent.

HSBC strategists assessed that geopolitical tensions, high global interest rates, and both domestic and foreign risks are influential in this cautious pricing.

The report also stated that if the easing cycle restarts, short-term interest rates could find the most support. According to the strategists, investors beginning to price in a more comprehensive or aggressive cut process could have a positive impact on short-term interest rates.

News Source: 12punto