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TURKEY: BBVA Says Inflation Risks Require A Cautious Monetary Policy Stance

TURKEY
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  • BBVA says that although the inflation trend in Q4 may create room for the CBRT to consider a rate cut, upside risks require a cautious stance. Therefore, they have shifted their first 250bp rate cut expectation from November to December, followed by gradual cuts and the maintenance of credit growth caps at least in Q1 2025 in order to contain any inflationary impact.
  • They note that the underlying consumer inflation trend worsened further in September due to the deterioration in core inflation, led by elevated services prices and accelerating goods inflation. Services inflation deteriorated further on a seasonally adjusted basis due to backward indexation and second round effects.
  • Despite the ongoing moderation in domestic demand and relatively muted cost push factors, inflation expectations remain elevated and continue to pose a clear risk to the CBRT's inflation forecast for 2025. In addition, uncertainties on wage hikes, administered prices and tax adjustments at the beginning of 2025 maintain upside risks on the inflation outlook.
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  • BBVA says that although the inflation trend in Q4 may create room for the CBRT to consider a rate cut, upside risks require a cautious stance. Therefore, they have shifted their first 250bp rate cut expectation from November to December, followed by gradual cuts and the maintenance of credit growth caps at least in Q1 2025 in order to contain any inflationary impact.
  • They note that the underlying consumer inflation trend worsened further in September due to the deterioration in core inflation, led by elevated services prices and accelerating goods inflation. Services inflation deteriorated further on a seasonally adjusted basis due to backward indexation and second round effects.
  • Despite the ongoing moderation in domestic demand and relatively muted cost push factors, inflation expectations remain elevated and continue to pose a clear risk to the CBRT's inflation forecast for 2025. In addition, uncertainties on wage hikes, administered prices and tax adjustments at the beginning of 2025 maintain upside risks on the inflation outlook.