Türkiye | A Cautious Easing Step

The CBRT cut the policy rate by 100bp to 36% and accordingly lowered the asymmetric interest corridor to 34.5-39%, in line with the market consensus. The CBRT also signals that the easing cycle may not proceed smoothly, with potential pauses along the way.

Key points

• Key points:
• The CBRT justifies the decision by highlighting a deceleration in the underlying inflation trend. It also highlights weaker economic activity as a factor limiting the pass-through of recent supply shocks to prices. At the same time, the CBRT maintains a balanced tone, acknowledging upside risks to the inflation outlook from elevated energy prices.
• By explicitly emphasizing that the size and timing of policy steps will be determined prudently on a meeting-by-meeting basis, with a focus on the inflation outlook, the CBRT signals that the easing cycle may not proceed smoothly, with potential pauses along the way.
• The CBRT considers the current degree of monetary tightness appropriate and intends to preserve it by adjusting nominal interest rates in line with improvements in the underlying inflation trend. Meanwhile, it is likely to maintain its exchange rate strategy to unwind accumulated real appreciation, resulting in declining net returns on TL assets as global interest rates remain high for longer and warranting close monitoring of any potential shift toward dollarization.
• Ongoing supply disruptions, potential upward pressure from energy and food inflation and unanchored expectations keep risks tilted to the upside for inflation outlook. Moreover, any moderation in core inflation in 4Q26 could reverse in early 2027, reflecting year-start price and wage adjustments as well as a gradual shift toward a supportive fiscal stance.
• With inflation likely to remain sticky at around 30% until late 1Q27, we forecast the policy rate to remain at 36% until clearer signs of disinflation emerge. Nevertheless, should year-end inflation appear likely to come in below 30%, the CBRT could deliver another 100bp cut at its December MPC meeting, broadly in line with market consensus.

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