Eyes on the Central Bank: 250 basis point cut expected

Following the announcement of June inflation data, all eyes turned to the Central Bank Monetary Policy Committee meeting to be held on July 24. Experts pointed out that it is highly likely that the CBRT will start reducing the policy rate by 250 basis points at the Monetary Policy Committee meeting.

June inflation data came in below expectations. Accordingly, while the CPI increased by 1.37 percent on a monthly basis in June, annual inflation fell to 35.05 percent. After the June inflation figures, all eyes turned to the meeting of the Central Bank of the Republic of Turkey (TCMB) Monetary Policy Committee to be held on July 24. Experts point out that the Central Bank is likely to make its first 250 basis point reduction in the policy rate.

QNB Chief Economist Hasan Erkin Işık said , “Although higher rates are also being discussed in the market, in our opinion, it would be more appropriate for the CBRT to take a cautious approach with a 250 basis point reduction. The first reduction to be made in a new interest rate reduction cycle will also be decisive in terms of the speed and size of the subsequent steps.”

Işık said, "The rapid reduction in expectations may lead to a sudden easing in financial conditions, causing the targeted slowdown in the economy to reverse early. Despite the recent improvement in inflation, the fact that we are still far from low inflation levels indicates that monetary conditions should remain tight for a while longer."

Timothy Ash, Senior Strategist for Emerging Markets at Bluebay Asset Management, also pointed out that Treasury and Finance Minister Mehmet Şimşek 's plan is working and that the recent interest rate hikes by the TCMB have started to slow down economic activity. Ash said, "The slower than expected inflation in Turkey supports interest rate cut expectations. Inflation will continue to surprise on the downside."