Economy in Turkey: Banks revise their interest rate forecasts

December 28, 2024 BTT

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Banks have revised their interest rate forecasts following the Central Bank of the Republic of Turkey’s (CBRT) decision to lower rates yesterday and its plan to reduce the number of monetary policy meetings in 2025 from 12 to 8.

On December 27, 2024, the CBRT began its rate cuts with a 250 basis point reduction. As a result, market analysts updated their forecasts for 2025.

An article published by Tuğçe Özsoy and Beril Akman on Bloomberg titled “Analysts update their interest rate expectations after bigger cuts and fewer meetings” provides new interest rate forecasts.

In its statement, the CBRT emphasized a more cautious approach to future rate cuts, saying, “The Committee will make decisions with a focus on inflation outlook, adopting a cautious and meeting-based approach,” which indicated a relatively hawkish stance for future cuts. However, analysts increased their rate cut expectations after this announcement.

U.S. Banks Adjust Their Forecasts

Economists at Morgan Stanley, one of the leading U.S. banks, reduced their policy rate forecast for March 2025 from 44% to 42.5%. This indicates expectations of 250 basis point cuts in both the January 23 and March 6 meetings.

Another major U.S. bank, Citi, expects the policy rate to be 30% by the end of 2025. This would require a total of 1750 basis points in cuts across eight meetings.

Analysts from Goldman Sachs, another prominent U.S. bank, maintained their forecast of a 39% rate by June 2025.

Local Banks’ Forecasts

Okan Ertem from Turkey’s Economy Bank (TEB) and Ercan Ergüzel from Barclays Plc. predict 250 basis point cuts at each of the eight meetings in 2025. This would bring the interest rate down to 27.5% by the end of the year.

QNB’s Chief Economist Erkin Işık suggested that the reduction in the number of CBRT meetings could imply larger cuts. He expects 250 basis point cuts in the first two meetings of 2025, with a year-end policy rate of 28.5%.

The CBRT’s upcoming monetary policy meetings for 2025 are scheduled as follows: