Turkish Inflation Falls Sharply in May, Raising Speculation Over Possible Rate Cut

Türkiye’s annual inflation rate fell to 35.41% in May, marking its lowest level since November 2021 and offering an encouraging sign for policymakers. The figure dropped from 37.86% in April, while monthly inflation slowed to 1.5% from 3%—a sharper deceleration than most forecasts anticipated.

This softer-than-expected inflation print has prompted renewed speculation about the Central Bank’s next move, as it prepares for its Monetary Policy Committee (MPC) meeting later in June.

Interest Rate Decisions in Focus as Inflation Slows

At its last meeting in April, the Central Bank of the Republic of Türkiye (CBRT) raised the one-week repo auction rate—the main policy rate—from 42.5% to 46%. It also hiked the overnight lending rate to 49% and the overnight borrowing rate to 44.5%.

The unexpectedly sharp fall in inflation has led to questions about whether the Central Bank might pivot toward a rate cut sooner than expected.

Mixed Views from Global Analysts: Cautious Optimism

Bank of America (BofA) analysts argue that while food and services inflation showed favorable trends in May, the CBRT is unlikely to cut rates at the upcoming June meeting. Instead, they suggest the bank could opt for a technical adjustment, such as narrowing the interest rate corridor by lowering the upper band to 47.5%.

However, Capital Economics took a more dovish stance, noting that the inflation slowdown “will increase the bank’s confidence” in resuming its easing cycle sooner than projected.

“While we had expected rate cuts to begin in Q3, a cut this month is now not out of the question,” Capital Economics said in a post-data note.

Most Expect July Cut, But Timing Remains Uncertain

Morgan Stanley remains more conservative, forecasting no policy change in June despite the promising inflation data. The bank’s economists believe the Central Bank will wait until July to begin easing, citing caution over exchange rate volatility and foreign reserve levels.

BBVA echoed this view, saying the CBRT may resume monetary easing once it is more comfortable with FX reserve stability, particularly with expected inflows during the summer tourism season.

Meanwhile, ING Bank, in a note following Türkiye’s recent GDP release, stated that although many market participants anticipate rate cuts this summer, the sharp fall in international reserves could slow down the easing trajectory, prompting a more measured approach.

What to Watch Next

As Türkiye’s Central Bank weighs its next move, global markets will closely watch:

• The June MPC meeting outcome

• Core goods inflation trends amid FX fluctuations

• The trajectory of international reserves

• Seasonal tourism revenue’s impact on the current account

With inflation finally showing signs of retreat, Türkiye could be at the threshold of a new monetary phase—but whether that starts in June or July remains a key question for economists and investors alike.