ANALYSIS: CBRT’s premature rate cut rush
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The Central Bank of the Republic of Türkiye (CBRT) delivered a widely expected 150-basis-point rate cut at its December policy meeting, lowering the one-week repo rate from 39.5% to 38.0%. Analysts say the decision supports the bank’s controlled easing cycle while keeping real rates in positive territory.
Rate Cut in Line With Market Expectations
Following Governor Karahan’s recent signals of a limited calibration in policy and a still supportive domestic demand outlook for disinflation, both the market consensus and İş Yatırım had expected a 150 bps cut.
The reaction across asset classes was muted. Turkish government bonds saw mild gains, while equities briefly fluctuated before returning to a stable trend.
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Real Rates Remain Firmly Positive
The monthly simple policy rate stands at 3.17% (or 3.22% compounded). After deducting the 17.5% withholding tax, these figures drop to 2.61% and 2.65%, respectively.
Using the latest estimate of the monthly inflation trend — around 1.95% — İş Yatırım calculates a strong positive real return of roughly 0.65–0.70% per month. Based on November inflation, the annual real interest rate is approximately 5.3%, reinforcing the firm stance in support of the lira.
“We maintain our constructive view on the Turkish lira,” the analysts wrote.
Statement Shows Limited Change, But Signals a Softer Commitment to the 16% Target
The CBRT’s press release was brief and closely resembled the previous month’s statement. The Bank acknowledged:
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November inflation came in below expectations due to food prices.
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The underlying inflation trend improved only marginally.
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Growth in Q3 exceeded earlier projections.
Despite strong demand data, the statement again emphasized that “demand conditions continue to support the disinflation process.” İş Yatırım interprets this as evidence that the CBRT is not strongly committed to the 16% year-end 2026 inflation target, accepting instead a slower disinflation trajectory.
Key Variables Ahead: Minimum Wage and Administered Prices
The January PPK meeting may be shaped significantly by decisions on:
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the 2026 minimum wage adjustment,
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administered price revisions, including the revaluation rate used in public tariffs.
İş Yatırım’s baseline assumptions include:
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25% minimum wage increase,
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18% revaluation rate,
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19% basket currency depreciation through 2026,
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4.0% monthly inflation in January, driven by expected increases of 30% for doctor appointment fees and 22% for pharmaceuticals.
These inputs underpin İş Yatırım’s 24% year-end inflation forecast for 2026.
Rate Path Outlook: 1,000 bps of Cuts Through 2026
The analysts see no need to revise their interest-rate projections following the December decision.
Their base case:
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First half of 2026: four 150 bps cuts
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Second half of 2026: four 100 bps cuts, as disinflation slows
This totals 1,000 basis points of easing, ending 2026 with a 28% policy rate.
The forecast assumes the CBRT maintains its historical pattern of tolerating deviations from its formal target and sees core inflation slowing toward 1.5% m/m by late 2026.
However, if the minimum wage rise reaches 30% and the revaluation rate approaches 25%, the Bank may proceed more cautiously, delivering only 100 bps cuts at the 23 January and 6 March meetings.
Authors
Serhat Gürleyen, Director of Research
Dağlar Özkan, Economist, Is Invest
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