Economists' Rate Cut Expectations Become Clear After Central Bank Rate Decision
While the CBRT kept the policy rate constant at 37 percent, published reports strengthened expectations for rate cuts in October and December.
Following the Central Bank of the Republic of Turkey's decision to keep the policy rate steady at 37 percent, economists' year-end rate cut expectations concentrated on the October and December meetings.
Policy Rate Remained Constant
The Central Bank of the Republic of Turkey kept the overnight lending rate at 40 percent and the borrowing rate at 35.50 percent, making no changes to the interest rate corridor. Thus, the policy rate remained at the 37 percent level for the fifth consecutive meeting.
Disinflation Process and Domestic Demand
In the majority of the reports, recent inflation realizations and leading indicators pointing to a decline in the underlying trend of inflation were evaluated as an important message. Institutions agreed that the weak course of domestic demand supports the disinflation process.
Energy Prices Pose a Risk
Energy prices and geopolitical developments were highlighted in institutional reports as the most significant short-term risks ahead of the rate path. It was stated that high energy costs could create upward pressure on inflation forecasts.
Normalization Step in Funding
With the CBRT resuming one-week repo auctions at the end of August, the effective funding cost at the 40 percent level dropped to the policy rate of 37 percent.
Year-End Expectations
Among institutions sharing explicit forecasts, year-end policy rate expectations ranged between the 35-36 percent band, while CPI expectations took shape in the 28-30 percent range.