Reuters: TCMB May Slow the Pace of Rate Cuts as Inflation Worries Grow

Turkey’s central bank may soon take a more cautious approach to interest rate cuts as inflation concerns intensify, according to reports from recent meetings between Central Bank of the Republic of Turkey (CBRT) officials and international investors in Washington last week.

Officials from the CBRT, including Governor Fatih Karahan, met with investors on the sidelines of the IMF and World Bank Annual Meetings, where they signaled growing awareness of inflationary risks and hinted that the pace of rate reductions could be slowed.

Inflation Stickiness and Policy Uncertainty

While the CBRT did not provide clear guidance on how much the easing cycle could decelerate ahead of its next policy meeting on October 23, participants told Reuters that policymakers appeared more cautious than in previous months.

The bank has cut its benchmark policy rate by 300 basis points in July and 250 basis points in September, but officials now face a more complicated inflation outlook.

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CBRT representatives told investors they were closely monitoring market expectations ahead of the Monetary Policy Committee (MPC) meeting and are determined to address what they described as “price stickiness” — a persistence of high inflation despite slowing growth.

Governor Karahan, who refrained from commenting directly during his Washington appearances, said earlier this month that recent data pointed to a slowdown in the disinflation process.

Inflation Surprises on the Upside

Turkey’s annual inflation, which peaked at 75.4% in May 2024, climbed again in September to 33.3%, exceeding forecasts and marking the first rise since May. Both monthly and annual readings for August had also surprised to the upside, reinforcing expectations that the CBRT may tread more carefully in the coming months.

According to a Reuters poll, most economists expect the central bank to slow the pace of easing, projecting a 100 basis point rate cut in October — which would bring the one-week repo rate down from 40.5% to 39.5%.

Split Expectations Among Analysts

However, opinions remain mixed. Among 17 economists surveyed, four anticipate no change, five forecast a 150 basis point cut, and two expect a 250 basis point move. Several respondents noted that the CBRT’s previous rate cuts were “more aggressive than expected,” suggesting policymakers might now consider a pause if inflation pressures persist.

Two participants also said central bank officials appeared ready to halt the easing cycle altogether if economic data warranted it.

Karahan: “We’re Watching the Slowdown Closely”

Speaking in Washington last week, Governor Karahan acknowledged that the recent moderation in inflation had “slowed somewhat”, calling it a “significant development” that required careful attention.

He reiterated that the CBRT’s commitment to price stability remains firm, adding that progress made so far was both “important and encouraging.” Karahan emphasized that monetary policy will stay tight until inflation is fully under control.