BarCap expects the policy rate to be cut by 300bp to 12% over the next two CB meetings

Inflation to peak at over 30%: Marking to marked the most recent move in TRY, we revise our inflation forecasts. The most important assumption is TRY: we assume USDTRY at an average 13 in December and January, and at 14.5 at the end of 2022 corresponding to 11.6% y/y rise over 2022. Based on this, we expect the impact of recent FX moves to start to show up in inflation in December when we expect CPI to 25.5% y/y. For 2022, we expect CPI to peak at 31.4% y/y in May before decelerating gradually to 21.8% y/y in December 2022.


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We expect a 200bp policy rate cut on 16 December meeting: Despite ongoing deterioration in inflation and elevated TRY volatility, the authorities are sounding dovish and consider the current inflation levels as transitory and TRY volatility/level as irrational. This suggests to us that there is a determination to continue the easing cycle. Despite additional commitments from public authorities, one critical question, in our view, is what is a low interest rate – 12%, 8% or 5%? If we assume 12% as the initial target, the ex-post real policy rate would fall -19% in Q2 22, its lowest ever in Turkey and probably in any other country in the post-2000 period.

Based on current communications by the authorities, we expect an additional 300bp cut in the near term to 12%. We expect a 200bp cut on 16 December followed by a 100bp cut in January 2022. However, ongoing excessive TRY volatility makes it quite difficult to have a strong view for the medium term.


By Ercan Adıguzel


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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.