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Türkiye’s annual inflation eased to 35.05% in June, according to official figures, marking another sharp decline from May’s 35.41% and reinforcing market expectations for an interest rate cut in July.
The Turkish Statistical Institute reported Thursday that monthly inflation came at 1.37%, bringing annual inflation down further without interruption since May 2024’s 75.45%.
This figure widens the policy rate-inflation gap further, giving more room to the policymakers in deciding on a well-anticipated cut.
Commenting on the data, Türkiye's Finance Minister Mehmet Simsek said inflation eased in June despite rising oil prices due to geopolitical tensions.
"In services, where inertia is high, annual inflation dropped to 50% after three years," Simsek said on X.
"Our determination in the disinflation process has become evident in both actual data and expectations," he noted.
Simsek stated that declining commodity prices, reduced volatility in financial markets, improving inflation expectations, and supportive demand conditions in recent times will contribute to the continued decline in inflation in the second half of the year.
"Our citizens can rest assured; a noticeable slowdown in inflation has begun across various sectors, from food and durable consumer goods to education and transportation, and this trend will continue," he added.
The Turkish central bank is widely expected to resume rate cuts in July’s Monetary Policy Meeting for the first time since February, after surprising a 350 basis point hike in April, holding steady in June at 46%, along with the overnight funding rate at 49%.
The Turkish central bank’s survey of market participants released in June showed that economic agents agreed on anticipations of a 300-basis point cut in July’s meeting, implying that the policy rate would be reduced to 43%.
This also aligns with major international and local lenders’ forecasts, with global banks such as JPMorgan, Morgan Stanley, Citi, and Deutsche Bank previously projecting a 250-basis point cut. On the other hand, Turkish giants Ziraat and Garanti bet on a 300-basis point cut, while Is Bank sees a 350-basis point reduction.
The previous statement of the Turkish central bank following June’s monetary policy meeting also added to these expectations, as it said, "All monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen." This phrase is deemed a dovish message, implying that the bank prepares to resume the rate cut cycle.
Türkiye’s Treasury and Finance Minister Mehmet Simsek highlighted on Wednesday the improvement in economic conditions since April.
He noted that the risk premium (CDS), which had risen to 381 basis points in April, declined to 283 basis points by the end of June, while the two-year benchmark bond yield fell from 49% to below 40%.
“With the ongoing disinflation process, we expect domestic financial conditions to improve further in the coming period,” Simsek added, reinforcing expectations of a rate cut.
Adding to Simsek’s remarks, Türkiye’s reference rate and average funding rate have also been declining to align with the policy rate, as Turkish lira overnight reference rate (TLREF) dropped to 45.95% and the average cost of central bank funding to 46% from 49%.
The Central Bank of the Republic of Türkiye’s (CBRT) next monetary meeting is scheduled on July 24, with the interest rate decision to be announced at 2 p.m. local time (GMT+3).
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