Türkiye | The CBRT, acting dovishly, seeks to strike a balance

Summary

The CBRT lowered the policy rate by 250bps to 40.5%, higher than the consensus of 200 bps, with also a similar size of cuts in the corridor (39%-43.5%). Considering the challenges ahead, we still maintain the view of reducing the size of the cuts going ahead after today’s decision.

Key points

• Key points:
• Following a similar bolder than expected rate cut in the July MPC, today’s decision again implies some complacency about the price and financial stability, ahead of the potentially increasing volatility because of domestic and external uncertainties in the near future; yet this time their tone tries to draw the balance of risks with a clearer commitment of tightening if needed.
• After the change in the CBRT communication strategy by differentiating the inflation forecasts from the interim targets, they now give a clearer commitment of tightening the monetary policy with respect to the interim targets, if inflation readings deviate significantly. It is still blurred what level would be significant; however, being explicit to tighten instead of monetary policy tools to be used effectively shows a higher degree of commitment.
• One of the most important changes in the MPC statement is the removal of the reference to the real appreciation of the currency on the disinflation process.
• Given the reduced room for real appreciation going ahead, there is the risk of sticking to 1.5-2% trend after 1Q26, and the high positive contribution from inventories in 2Q25 requires caution not to allow a fast recovery in domestic demand during the easing cycle, while inflation expectations remain above the CBRT revised forecast range.
• We still maintain the view of reducing the size of the cuts after today’s decision, with 200bps cuts in Oct and Dec, to reach 36.5% policy rate by end 2025. In this regard, we understand macro-prudential measures and liquidity policies will remain essential in order not to allow a fast decline in ON TL rates and a speeding up dollarization.

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