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U.S.-based investment bank Goldman Sachs economists expect the Central Bank of the Republic of Türkiye (CBRT) to keep its policy rate unchanged at its Oct. 22 meeting, putting their forecast at odds with market expectations for an interest rate cut.
In an Oct. 7 assessment, economists reiterated their view that it is too early for the CBRT to begin a new easing cycle. They expected no change at the October meeting but acknowledged that a rate cut remains a significant possibility, highlighting the gap between their forecast and market pricing.
Goldman Sachs noted that household inflation expectations have started rising again after a brief decline, while market participants’ expectations remain above pre-Iran war levels. The economists also pointed to faster reserve losses following the CBRT’s 300-basis-point rate cut.
They also reviewed the inflation outlook in the CBRT’s latest Inflation Report, saying underlying inflation has only recently started moving back toward its pre-energy shock trend.
Markets are already pricing in an easing cycle, but the outlook remains uncertain. Current pricing suggests investors expect rate cuts to begin, while also indicating that the easing period could be relatively short.
Offshore market pricing, meanwhile, points to significant downward pressure on the Turkish lira in the coming period.
Foreign investors have also shown little appetite for Turkish bonds despite expectations of lower interest rates. While the yield curve reflects rate cuts ahead, nonresident investors have not substantially increased their bond holdings, the bank noted.
Market expectations for a potential rate cut in Octoberstrengthened after September inflation figurescame in below market expectations at 1.8% month-over-month and 29.7% year-over-year.
The latest CBRT Survey of Market Participants, conducted in September, put the average year-end inflation expectation at 29.6%, while the 12-month forecast stood at 22.7%. Participants also expected the policy rate to fall to 36% at the October meeting.
The CBRT has kept its policy rate at 37% since January, when it cut the rate by 100 basis points from 38%. The bank subsequently left rates unchanged at its March, April, June, July and September meetings.
At its latest meeting on Sept. 10, the bank noted that the underlying inflation trend was slowing but warned that elevated energy prices linked to geopolitical developments posed an upside risk to the inflation outlook.
The next policy decision is due on Oct. 22, when the CBRT will assess whether conditions have improved enough to resume rate cuts.
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