MNI INTERVIEW: CBRT To Cut In Q1 2025 - Ex-Official Ozatay
MNI (LONDON) - The Central Bank of the Republic of Turkey will wait until its first policy meeting of 2025 before cutting rates, but it will come close to hitting its inflation target this year and next despite faster-than-expected price rises in September, former deputy governor Fatih Ozatay told MNI.
Monthly inflation of 2.97% rules out a cut in September, despite a near-three-percentage-point fall in annual inflation to 49%, said Ozatay.
“Even if it does fall to 1.5% in October or November the central bank will not cut on the basis of one data point,” he said in an interview. Policymakers should be confident that inflation is evolving in line with their expectations by December, but will wait for confirmation from public inflation expectations before easing. (See MNI EM CBRT WATCH: Rates On Hold, Sees Expectations Upside Risk)
“Seen from that perspective I think they will wait for the first meeting of the year, in January, to lower the interest rate. Earlier would be premature,” Ozatay said.
The CBRT revised its annual inflation target for 2024 up 2 percentage points in May to 38%, with the forecast range of 34-42% just below the IMF’s recent 43% estimate. In August it said it expected seasonally-adjusted average monthly inflation to fall to around 2.5% in Q3 2024, and be slightly below 1.5% in Q4.
The 24% inflation seem by the IMF in 2025 is markedly higher than the 14% seen by the central bank. Yet the latter figure could soon be revised up to 17.5%, in line with the Turkish government’s Medium Term Programme for 2025-2027, Ozatay said, leaving the distance between CBRT and IMF estimates “not large.”
GDP GROWTH
Turkey’s economy contracted in Q3, with leading indicators suggesting it will shrink slightly again in Q4, taking average GDP growth to less than 3% this year, Ozatay said.
“Businesses will therefore start to increase pressure on the central bank. Having said that, I don’t think there will be significant political pressure, since the election is not until 2028.”
Growth of 3.5-3.2% is achievable in 2025, he said, and the economy is unlikely to expand by less than 4% by 2027. “After that, there’s a question. Whether inflation can also come down to 5% is also open to question.”
Ozatay said he did not expect a change from the generally hawkish tone of the CBRT’s post-meeting communications this Thursday, especially after the dovish tilt provided by the removal last month of an explicit reference to the potential for further rate hikes.
But while the one-week repo rate is widely expected to remain at 50% this year, there is little reason beyond geopolitical risk to think upward price pressures will return.
“Geopolitical risks are the major upside risk, but I do not see any others,” Ozatay said. “On the contrary, external conditions are in favour of the disinflation process in Turkey, including rate cuts by the ECB and the Federal Reserve.
“Oil prices remain low compared to last year, and energy prices are a big component of Turkish inflation. There is a high level of inertia in services-sector inflation, but inflation in the manufacturing sector is going in the right direction. The exchange rate is broadly stable. Rent inflation has maintained its course, but one would expect the effects of that to fade over time.”