Türkiye | Caution Returns to the Fore at the CBRT

Summary

The CBRT again kept the policy rate and the interest corridor unchanged at 37% and 35.5-40%, respectively, in line with the market consensus. Following the CBRT’s earlier and faster-than-expected easing as of August 23rd, today’s decision appears to signal caution amid the renewed rise in energy prices.

Key points

• Key points:
• The CBRT again highlights the weakness in domestic demand, pointing to limited pass-through from supply shocks to domestic prices. However, this time, the Bank also stresses that elevated energy prices pose an upside risk to the inflation outlook.
• Given increasing concerns over weakening economic activity, we still think that, once pressure from energy prices eases, the Bank would feel more comfortable reducing real rates.
• On inflation, the CBRT foresees a decelerating underlying trend of inflation despite monthly fluctuations, as signaled by recent inflation figures and leading indicators. We nowcast a slightly above 2% m/m CPI increase in September, implying a seasonally adjusted monthly increase of just below 2%, broadly confirming the CBRT’s assessment.
• If energy prices normalize below USD 90/bbl as we approach the October MPC meeting on October 22, we expect a 100bp cut in the policy rate, supported by the room provided by still-high real rates as annual inflation declines to around 30%.
• Given that inflation is likely to remain sticky at around 30% until late 1Q27, we expect the policy rate to stay at 36% until there is a clearer improvement in the disinflation trend.

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