When will the Central Bank cut interest rates? Forecasts from foreign banks have arrived

The Central Bank of the Republic of Turkey (TCMB) announced its highly anticipated interest rate decision on Thursday.

The CBRT Monetary Policy Committee (MPC) has kept the policy rate unchanged at 50 percent for the 6th consecutive time.

Following the Central Bank's interest rate decision, markets are locked on when the rate cut will come.

While the Central Bank abandoned its emphasis on "additional tightening," it stated, "In the event that a significant and persistent deterioration in inflation is foreseen, monetary policy tools will be used effectively."

The phrase "In the event of a significant and persistent deterioration in inflation, the monetary policy stance will be tightened," which appeared in the previous decision text, was not included in the September decision text.

Deutsche Bank, Morgan Stanley, Citi, Goldman Sachs, Barclays, and UBS have stated that the CBRT could begin interest rate cuts in November. BofA's expectation is for interest rate cuts to begin in December.

UBS

In a report dated September 19 prepared by UBS Economist Gyorgy Kovacs and Strategist Nimrod Mevorach, it was stated that the guidance has taken on a less hawkish tone due to the changes made by the CBRT in its statement.

The note indicated that the tone of the CBRT's statement has clearly begun to shift, but at this stage, this does not signal a need to cut interest rates at the next meeting in October.

While the UBS note stated that it maintains its previous views regarding the CBRT's path, it added, "We still believe that the first interest rate cut could take place in November, but we are also aware of the risk that the easing cycle could be delayed."

DEUTSCHE BANK

Deutsche Bank also expressed the view that the hawkish tone of the guidance has softened slightly with the change made in the text.

In a note dated September 19 signed by economist Yiğit Onay and strategist Christian Wietoska, Deutsche Bank stated that the CBRT maintained its cautious stance with a small, dovish change in its statement.

Noting that the CBRT removed its explicit reference to tightening while reiterating its readiness to use existing monetary policy tools against inflation risks, Deutsche Bank stated that the continued slowdown in domestic demand, ongoing domestic de-dollarization, and favorable external conditions have made it easier for the CBRT to soften its hawkish tone.

According to Deutsche Bank, the CBRT did not make an explicit reference to monetary easing. The bank stated that it views this shift as a transition to a more neutral stance.

The bank's base scenario is for the CBRT to begin its interest rate cut cycle in November with a 250 basis point reduction. However, the bank noted in its report that risks point toward starting interest rate cuts later rather than earlier.

According to the bank's report, sticky services inflation, fragile investor expectations, heavy TL positioning, the course of fiscal policy, and renewed selling pressure on the currency could delay the start of the easing cycle.

MORGAN STANLEY

According to Morgan Stanley economist Hande Küçük, the change in the tone of the CBRT increases the possibility that interest rate cuts may begin earlier than she had previously anticipated.

Küçük, who held the view prior to the decision that the CBRT would not cut interest rates throughout 2024, stated that the change in wording in the statement indicates that the tightening bias has diminished.

Küçük also said that the statement means the CBRT "wants to give the first signal to prepare the market for potential easing steps that will be dependent on data flow."

GOLDMAN

Goldman Sachs economists Clemens Grafe and Başak Edizgil predicted following the decision that interest rate cuts might begin at a later date than they had previously anticipated, in November.

The economists stated that they believe the slowdown in domestic demand will sufficiently reduce inflation momentum in September and October, allowing the CBRT to implement its first 100 basis point interest rate cut in November.

CITI

According to Citigroup Inc., the tone used in the CBRT's decision text indicates that officials are shifting toward a less restrictive stance.

Citi Economist İlker Domaç stated in a note published following the CBRT meeting that it is likely the CBRT will remain on hold until November and that he projects the policy rate will be lowered from 50 percent to 45 percent by the end of the year.

Domaç noted, “We agree that the CBRT has avoided giving strong signals toward initiating an easing cycle. However, we believe that replacing the phrase 'the policy stance will be tightened' with 'policy tools will be used effectively,' along with the use of softer language regarding the importance of expectations in the disinflation process, represents a shift in the CBRT's inclination toward a less restrictive stance.”

HSBC

In a note regarding the matter, HSBC Economist Melis Metiner recalled that the bank kept the interest rate unchanged at 50 percent, in line with expectations.

The economist stated that they do not expect any interest rate changes this year and noted that risks regarding interest rate cuts in the final quarter of the year are tilted to the upside.

The report, which noted that policymakers continue to maintain a cautious tone regarding inflation, included the following assessment: “Due to limited improvement in services inflation and inflation expectations, we expect the policy rate to remain at this level until the end of the year, with the easing cycle beginning in 2025. Today’s statement indicates that the final quarter’s data on services inflation will be closely monitored. A significant improvement on this front could lead the bank to start its easing cycle earlier than expected.”

The bank projects that the policy rate will fall to 42.5 percent in the first quarter of 2025 and to 36.5 percent in the second quarter.

BARCLAYS

In a report shared by Barclays Economist Ercan Ergüzel, the bank projected that it would begin interest rate cuts in November.

Noting that the CBRT issued a more balanced statement with a dovish tone, the report stated, "This can be perceived as a signal that the bank is preparing to start cuts in the final quarter of the year. We have revised our initial interest rate cut forecast from January 2025 to November 2024. We anticipate that the bank will implement 250 basis point cuts at each meeting until August 2025 and lower the policy rate to 25 percent."

BofA

BofA Merrill Lynch Turkey Economist Zümrüt İmamoğlu stated, "We expect an interest rate cut from the CBRT in December. We had previously moved our expectation for an interest rate cut from March to December. Our inflation forecast is 42 percent. If the data comes in much better than our expectations, the first rate cut could even be in November, but we need to see the data. We expect the year-end dollar/TL exchange rate to be in the 37-38 range. For next year, we are forecasting a range of 45-46."