Investment Banks React to CBRT’s Surprise Rate Cut: “Dovish Move, Hawkish Messaging”

Summary:

The Central Bank of the Republic of Turkey (CBRT) surprised markets by cutting its policy rate by 250bps to 40.5%, exceeding consensus expectations of a 200bps move. Leading global and local investment banks — including Citi, JPMorgan, Gedik Investment, Ak Investment, and İş Investment — weighed in on the decision, describing it as “dovish in action, hawkish in tone.”

Citi: “Difficult to Reconcile Decision with Inflation Risks”

Citi economists İlker Domaç and Gültekin Işıklar highlighted that they had expected a 200bps cut, but the CBRT delivered 250bps instead.

Their note emphasized three key points:

• Q2 GDP came in stronger than expected, yet domestic demand remains weak.

• Food prices and sticky service items are putting upward pressure on inflation.

• Inflation expectations, pricing behavior, and global developments still pose risks to disinflation.

Citi argued that back-to-back larger-than-expected rate cuts are hard to reconcile with the Bank’s pledge to tighten policy if inflation deviates from interim targets. The bank kept its year-end forecast unchanged at 38%, but warned of risks skewed toward more aggressive easing.

JPMorgan: “Dovish Cut, Hawkish Forward Guidance”

JPMorgan economist Fatih Akçelik described the rate move as dovish, noting that it exceeded the firm’s 200bps expectation.

However, he pointed to a dual message:

• Despite the “dovish” cut, the CBRT gave hawkish forward guidance, pledging to tighten if inflation strays from its interim targets.

• JPMorgan kept its year-end policy rate forecast at 37%, expecting 200bps in October and 150bps in December.

• September inflation is projected at 2.3%, with risks skewed to the upside.

Akçelik added that JPMorgan sees no imminent change in FX policy.

Gedik Investment: “A Hawkish Text Despite Larger Cut”

Gedik Investment noted that while the cut was deeper than expected, the accompanying statement was more hawkish than anticipated.

• The key change: “If inflation deviates significantly from interim targets, monetary policy will be tightened.”

• The removal of the explicit reference to the real appreciation of the lira as a disinflationary tool drew market attention. Instead, the CBRT emphasized the exchange rate channel.

Gedik expects the policy rate to end 2025 in the 37–37.5% range, with cut sizes shrinking to 100–150bps by December.

Ak Investment: “Commitment to Tight Stance Highlighted”

Ak Investment underlined the CBRT’s commitment to maintaining a tight stance until price stability is achieved.

• Overnight lending and borrowing rates were also lowered in line with the policy rate.

• The statement stressed that demand, FX, and expectations channels will strengthen disinflation.

• The Bank signaled that future rate moves will remain aligned with interim inflation targets.

İş Investment: “Smaller Steps Ahead”

İş Investment said the CBRT is signaling smaller incremental cuts going forward.

Key observations:

• References to “real appreciation of the lira” and “fiscal coordination” were removed, replaced with “exchange rate” and “Medium-Term Program.”

• The main change: replacing “persistent deterioration in inflation” with “deviation from interim targets” as a trigger for tightening.

• İş expects 250bps in October and 200bps in December, with the year-end policy rate at 36% (previously 37%).

The firm also lowered its 2026 year-end forecast to 24% from 25%.

Bottom Line: Market Awaits Next Moves

Across the board, analysts agree:

• The CBRT’s latest move is dovish in action, hawkish in rhetoric.

• Year-end policy rate forecasts cluster between 36–38%.

• The removal of the real appreciation language suggests a nuanced shift, but no radical change in FX strategy.

• Investors will closely monitor October’s MPC meeting to see if the CBRT maintains its current pace or opts for smaller cuts.