Morgan Stanley Raises Dollar, Inflation Forecasts After Turkey’s Surprise Rate Cut

Following the Turkish Central Bank’s unexpected 300 basis point interest rate cut in July, international and domestic financial institutions are recalibrating their forecasts. While both Morgan Stanley and Garanti BBVA kept their year-end policy rate projection at 36%, concerns over the rapid depreciation of the Turkish lira have prompted revisions in inflation and exchange rate expectations.

Morgan Stanley: Dollar/TL to Hit 45, Inflation to Reach 30%

According to a report shared by Bloomberg HT, Morgan Stanley economists—Hande Küçük and Arnav Gupta—now forecast the USD/TRY exchange rate to end the year at 45, up from their previous estimate of 43. They also revised their year-end inflation outlook from 29% to 30%, citing the accelerating depreciation of the lira as the main factor behind this adjustment.

Before the Central Bank’s latest move, the firm had anticipated a gradual easing with 250 basis points in total cuts over the remaining four meetings of the year. Now, their revised projection includes a 300 bps cut in September, followed by 200 bps each in October and December.

Garanti BBVA Maintains Forecast, Expects Slower Cuts Ahead

Garanti BBVA also chose to maintain its year-end policy rate forecast at 36%, aligning with Morgan Stanley. However, the bank anticipates that the pace of rate cuts will decelerate after the September meeting. Their analysts expect 200 basis point reductions in both October and December, reflecting a more cautious outlook amid ongoing macro-financial risks.

Market Sentiment Mixed After Aggressive Rate Move

The Turkish Central Bank’s move in July was well beyond market expectations, triggering both criticism and recalibration from analysts. While the decision signals a shift toward policy easing, rising inflationary pressure and currency instability are clouding the outlook.

Analysts now closely watch the lira’s trajectory and inflation indicators, especially as the Central Bank maintains a 5% medium-term inflation target, while actual figures remain far higher.