MNI CBRT Preview - December 2024: Easing Cycle Set to Begin
Executive summary
- There are mixed views over whether the CBRT will commence its easing cycle or keep the one-week repo rate unchanged at 50%, though risks appear skewed towards the former.
- Dovish tweaks to the central bank’s language last month and insights from our EM Policy Team both point to a rate cut being delivered at the final meeting of the year.
- As per the Bloomberg survey, 18 out of 22 analysts expect a rate cut to be delivered, with estimates ranging from a cut of as small as 150bps to as large as 300bps.
See the full preview, with a summary of sell-side analyst views, here:
On the data front, Turkey’s headline rate of inflation trended lower again in November, falling from 48.58% Y/Y to 47.09% while the month-on-month figure came in above expectations at 2.24% (Est: 1.92%). The central bank has repeatedly stated that a sustained decline in this series combined with a fall in household inflation expectations are pre-conditions for easing. Regarding the latter, market participants’ median expectations for inflation in the next 12 months fell marginally to 27.1% in December, but expectations for the next 24 months rose to 18.5%.
While the data may suggest that the conditions for easing have not been sufficiently met, in a blog post posted earlier in the month the CBRT noted that Turkey’s average output gap has steadily declined from the high positive levels of Q2 2023, with the results of eight key models removing a significant degree of uncertainty and showing that the decline has recently become more pronounced. Our EM Policy team note that the timing of the blog’s publication is understood to be a signal to markets that the central bank is ready to lower the policy rate as it seeks to balance demand.