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TURKEY: Goldman Sachs Push Back Timing Of First Rate Cut To January 2025

TURKEY
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  • Following this week’s inflation data, TCMB Governor Karahan acknowledged that progress is needed to achieve both a sustained decline in inflation momentum and the convergence of inflation expectations with the TCMB's targets - the two conditions the Bank has to start easing monetary policy.
  • With sequential inflation remaining well above the level Goldman Sachs thinks is necessary for the TCMB to start lowering its policy rate, they push back their forecast for the timing of the first rate cut from November to January next year. Lack of a slowdown in inflation and the continued erosion of households' purchasing power also raises the possibility of a higher minimum wage increase in December and adds to upside risks to inflation for next year. That said, GS thinks that the risk of premature easing by the TCMB is low, which should minimise the pressures on the lira.
  • GS thinks the lack of a slowdown in inflation momentum despite the weakening in domestic demand reflects the TCMB gaining credibility more slowly than assumed. Though inflation expectations declined in September, the gap between the expectations and the TCMB’s inflation forecasts has hardly declined. Reflecting this, as well as the deviation from their forecast for September, GS raise their 2024 end-year headline inflation forecast from 40% y/y to 44%.
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  • Following this week’s inflation data, TCMB Governor Karahan acknowledged that progress is needed to achieve both a sustained decline in inflation momentum and the convergence of inflation expectations with the TCMB's targets - the two conditions the Bank has to start easing monetary policy.
  • With sequential inflation remaining well above the level Goldman Sachs thinks is necessary for the TCMB to start lowering its policy rate, they push back their forecast for the timing of the first rate cut from November to January next year. Lack of a slowdown in inflation and the continued erosion of households' purchasing power also raises the possibility of a higher minimum wage increase in December and adds to upside risks to inflation for next year. That said, GS thinks that the risk of premature easing by the TCMB is low, which should minimise the pressures on the lira.
  • GS thinks the lack of a slowdown in inflation momentum despite the weakening in domestic demand reflects the TCMB gaining credibility more slowly than assumed. Though inflation expectations declined in September, the gap between the expectations and the TCMB’s inflation forecasts has hardly declined. Reflecting this, as well as the deviation from their forecast for September, GS raise their 2024 end-year headline inflation forecast from 40% y/y to 44%.