Türkiye | On Hold for Now, Gradual Easing Still Expected

Summary

The CBRT again kept the policy rate and the interest corridor unchanged at 37% and 35.5%-40%, broadly in line with market expectations. This marks the fifth consecutive month in which funding has continued through the overnight lending rate (40%).

Key points

• Key points:
• The expected increase in the underlying inflation trend in July, together with the renewed rise in energy prices amid recent geopolitical developments, appears to justify the decision to remain on hold.
• Although the CBRT highlights the ongoing weakening in domestic demand, the Bank appears to place greater emphasis on inflation in this statement. However, by describing the expected increase in the underlying inflation trend as temporary —a claim that cannot yet be substantiated in light of the renewed supply shock— the CBRT somewhat tempers its intended hawkish tone.
• We nowcast 1.85% m/m consumer inflation in July, implying a seasonally adjusted level of 2.3-2.4% m/m and a slight deterioration in the underlying inflation trend, which the CBRT also stresses in the statement.
• Depending on the evolution of energy prices, if a normalization again starts soon, we expect the funding rate to gradually normalize toward the policy rate in September. There may be limited room for policy rate cuts starting in 4Q26, with the policy rate expected to reach 36% by year-end.
• Faster than expected rate cuts would add renewed inflationary pressure going forward and increase the reliance on macroprudential measures.

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