What decision will come out of the MPC meeting? A date has been given for the Central Bank's interest rate cut

The Monetary Policy Committee (MPC) of the Central Bank of the Republic of Türkiye (TCMB) will meet on Thursday, September 19, under the chairmanship of Central Bank Governor Fatih Karahan.

The interest rate decision will be announced at 14:00 on the same day. In the MPC meeting held last month, the policy rate was kept constant at 50 percent.

While there is curiosity about when the TCMB will start lowering interest rates, ANKA Economy Coordinator Erdal Sağlam shared his assessments on the subject.

In his weekly economic analysis, Sağlam stated that the interest rate cut is expected to begin only towards the end of the year and that despite the decline in inflation expectations, they remain insufficient.

Sağlam's assessments are as follows: 

''Our Central Bank will also meet on Thursday, but an interest rate cut decision is not expected. In contrast, the statement to be made after the interest rate meeting will be closely watched by the markets. Because it is now expected that the Central Bank will also start cutting interest rates within a few months, but the timing is controversial. For this reason, clues regarding the timing of the cut will be sought in the interest rate announcement.

It is a matter of curiosity whether the phrase “additional tightening will be implemented if necessary,” which has always been included in recent statements, will be included in the Central Bank's announcement text this time. The removal of this sentence would contain a message that it is now preparing for an interest rate cut in the October or November meeting. If this sentence remains exactly as it is, signs will be sought between the lines regarding what the Central Bank management will pay attention to for an interest rate cut decision.

Economists and market analysts expect that, in addition to the statement, the September inflation figures to be announced on October 3 will also play an important role in the timing of the interest rate cut. Those participating in the market expectation survey have made an inflation forecast of 2.2 percent for September. In the newly announced Medium-Term Program (OVP), the year-end inflation forecast was increased from 38 percent to 41.5 percent. If the markets' September inflation expectation is realized, it is estimated that it could drop to 43 percent by the end of the year, even if it is not the figure in the OVP.

EXPECTATIONS ARE FALLING BUT STILL INSUFFICIENT

We saw that the participants of the inflation expectation survey conducted by the Central Bank, who made a forecast of 43.31 percent for the end of 2024 last month, lowered this forecast to 43.14 percent. In the same survey, the 12-month ahead CPI expectation, which was 28.71 percent in the previous survey period, fell to 27.49 percent in this survey period.

Since we are approaching the end of 2024, it is very normal for market players' inflation expectations to converge with the revised official figures. However, it should not be forgotten that the target in the OVP for 2025 is 17.5 percent, and expectations are 10 points above this.

There is a convergence with official figures in market expectations, but it can be expected that the inflation expectations of the real sector and citizens, which are expected to be announced in the coming days, will be one to two times higher than those of market players. We had seen very different and high expectations expressed in previous surveys.

Looking at these inflation figures, it can be said that inflation is expected to drop to half of the 50 percent interest rate within the next 1 year. The current annual inflation will drop to 48 percent on October 3, falling below the current policy rate again. We know that citizens calculate real interest rates by looking more at the current rate, while market players look at the coming year. The normal thing is to base it on the figures for the next year, but especially because citizens do not trust the official inflation figures, they estimate the expected inflation much higher when looking from today.

In a normally functioning economy, it is possible to say that there is actually a high real interest rate even now, looking at the coming year. For that reason, some economists see it as normal for the Central Bank to start interest rate cuts from next month. However, since there is still no trust in the implemented anti-inflation program, the Central Bank also wants to adopt a cautious stance and postpone interest rate cuts as much as possible.

This issue will form one of the main points of the interest rate cut debates expected to flare up in the coming period. One of the most important reasons for this is that there is insufficient confidence that inflation will be able to drop to official forecasts in the coming period. In other words, we see that the anxiety that this program could be abandoned at any moment continues."

News Source: 12punto