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U.S.-based investment bank Citigroup expects the Central Bank of the Republic of Türkiye (CBRT) to leave its policy rate unchanged at its upcoming Monetary Policy Committee (MPC) meeting following the release of May inflation data, according to a report by the bank's economists.
The report argued that the disinflation process is moving more slowly than previously anticipated and warned that room for interest rate cuts in the second half of the year remains far more limited than market expectations suggest.
Although the CBRT’s policy rate currently stands at 37%, Citi noted that the average funding cost has been running closer to 40% since the outbreak of the Iran-Israel conflict, meaning the central bank has effectively been financing the market through the costlier overnight lending rate.
The bank acknowledged that current economic conditions could justify both a currency adjustment and another interest rate increase. Even so, it forecasts policymakers to keep the benchmark rate unchanged at the next meeting.
Citi also pointed to the central bank’s recent decision to raise its interim inflation targets, citing the economic impact of ongoing tensions in the Middle East. The move, the report noted, signaled that authorities are prepared to maintain a tight monetary stance for longer.
According to the report, market expectations for policy easing later this year may be too optimistic. While consensus forecasts point to a year-end policy rate of 33.5%, Citi expects the CBRT to lower rates only to 35% by the end of 2026.
Türkiye’s monthly inflation eased to 1.7% in May, supported by lower oil prices amid growing hopes for a U.S.-Iran agreement. Annual inflation, however, continued to rise, reaching 32.6%.
The MPC is scheduled to meet on June 11. The central bank has left its policy rate unchanged at 37% in the past two meetings.
In May, it revised its inflation outlook upward, raising its year-end inflation forecast to 26% from 18% and increasing its interim inflation target to 24% from 16%.
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