FOREX NEWS SURVEY - Economists Expect TCMB to Cut Rates by 150 Basis Points This Month

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FOREX NEWS SURVEY - Economists Expect TCMB to Cut Rates by 150 Basis Points This Month

Foreks - Foreks News Central Bank of the Republic of Turkey (CBRT) interest rate survey results are out. The median expectation for the Monetary Policy Committee (MPC) meeting in December is that the interest rate will be reduced from 50.00% to 48.50 basis points. Economists express the possibility that the CBRT may also narrow its interest rate corridor with the onset of interest rate cuts.

Of the 25 economists participating in the Foreks News survey, 7 predicted a reduction of 150 basis points for the benchmark interest rate, 6 predicted 250 basis points, 4 predicted 200 basis points, and 4 anticipated a reduction of 100 basis points. Meanwhile, 4 economists argued that the weekly repo rate would remain steady at 50.00%.

  • Interest Rate Cut Expectations Pulled from January to December Economists expect the first interest rate decision to be made in December with a reduction of 150 basis points. In the previous survey period, it was predicted that the first interest rate decision would be made in January with a reduction of 250 basis points. Of the 25 economists, 21 expressed expectations for a rate cut in this month's meeting, 3 in January 2025, and 1 in February 2025. The anticipated reductions ranged from 100 basis points to 250 basis points.

When asked, "Do you expect an interest rate cut in 2025?", all 23 economists answered "yes." Conversely, responding to "Do you expect an interest rate increase in 2025?", all 16 economists replied "no." The median forecast for the end of 2025 was set at 30.00%, with an expectation range of 47.50 to 28.00. In the previous month's survey, the expectation was 30.00%, with the range between 40.00 and 26.00.

The year-end consumer price index expectation of 17 analysts occurred at 45.20%. The maximum expectation for the CPI was 46.00%, while the minimum expectation was 45.00%. In the previous survey period, the year-end inflation expectation was set at 45.00%. The expected range for the end of the year was between 47.50 and 43.30.

Economists' CPI expectations for the end of 2025 indicated a rise of 28.00%. In the previous month's survey, expectations pointed to an increase of 26.80%.

  • Economist Expectations Hande Şekerci, Head of Research Department at İş Portföy, noted that they expect the Central Bank to lower the policy interest rate by 150 basis points in December. She mentioned that the Central Bank raised the policy interest rate by 5 points to 50% in March and previously broadened the interest rate corridor (previously +/- 150 basis points), setting the overnight borrowing interest rate at 47% and the lending interest rate at 53%. She anticipates that with the beginning of interest rate cuts in this meeting, the CBRT may also narrow its interest rate corridor. Hande Şekerci emphasized that the corridor could again be set around the policy interest rate, symmetrically at 150 basis points, meaning that with a 150 basis point cut in the policy rate, the overnight borrowing interest rate would be set at 47%, and the lending rate at 50%.

Looking at recent liquidity in the market and the developments in Central Bank funding, Şekerci reminded that from April to the beginning of September, the average funding cost has occasionally been close to the upper limit of the corridor. Regarding the interest rate decision and inflation expectations, she stated, "Since September 10, the funding cost has equaled the policy interest rate, and for a long time, there has been excess TL liquidity in the market. Given that the lower bound of the interest rate corridor remains unchanged, it could serve as a lower limit considering the market's position on excess TL liquidity and may support cautious beginnings of interest rate cuts. The seasonally adjusted three-month average of headline CPI inflation, as of November, showed a limited increase from below the 2.7 level to 2.74, while the core-C measure stabilized at 2.66. The notable resistance observed in the trimmed inflation measure suggests to us that interest rate cuts should start cautiously. We expect annual inflation, after being around 42% in January, to finish the first quarter at the 39% level. The CBRT may pause interest rate cuts during this period based on the inflation outlook in some months. We evaluate that the policy interest rate will drop to 31% by the end of the year."

The CBRT's interest rate decision will be announced on Thursday, December 26, at 14:00.