US-based investment bank Morgan Stanley has made notable predictions in its new analysis regarding Turkey. The bank announced that with the weakening of domestic demand and falling inflation expectations during the summer months, the Central Bank of the Republic of Turkey (CBRT) will begin interest rate cuts in July.
According to Morgan Stanley, the policy rate will be lowered to 43.50 percent with an initial cut of 250 basis points in July. The bank also expects interest rate cuts at the same rate in August, September, and October. According to this scenario, the policy rate will have fallen to the 36 percent level by the end of 2025.
NO CHANGE IN INFLATION EXPECTATION
The bank maintained its year-end inflation expectation for Turkey at 29 percent. It was stated that the electricity price hike implemented in April and the expected natural gas price hike in July could create pressure on inflation in the short term. However, it was noted that these price increases would be temporary and that a rapid decline in inflation would continue due to the impact of the CBRT's cautious stance.
In the Morgan Stanley report, the CBRT's active liquidity management strategy was highlighted. It was emphasized that this strategy would facilitate reaching inflation targets by balancing potential liquidity gaps in the banking system. Furthermore, the bank added that interest rate cuts would have less of an inflationary effect in an environment of weakening domestic demand.
News Source: 12punto
