Economy in Turkey: Will the Central Bank Surprise?”
Amid global economic volatility and domestic political tensions following the arrest of Istanbul Mayor Ekrem İmamoğlu on March 19, the Central Bank of Turkey (CBRT) is preparing to announce its April Monetary Policy Committee decision. After an emergency meeting on March 20, the CBRT raised the lending rate to 46%, a move that surprised markets.
While previous expectations pointed toward a potential rate cut, the current market consensus is that the policy rate will remain at 42.5%. However, some economists predict a surprise rate hike of up to 350 basis points could still be possible.
The CBRT’s next regular meeting is scheduled for June 19, as there is no MPC meeting in May. Analysts expect interest rate cuts to start mid-year, though forecasts have recently been revised downward due to ongoing inflation concerns and market instability.
Some economists anticipate a restructuring of the interest rate corridor in the upcoming meeting, potentially signaling tighter monetary policy without an official policy rate hike.
Foreign analysts from institutions like SEB Research, Morgan Stanley, and Goldman Sachs also believe a hawkish move could be on the table, citing persistent inflation, weakening reserves, and currency depreciation as key risks.
The CBRT has reportedly sold $43 billion in foreign currency since mid-March to support the Turkish lira, causing net reserves to fall below $20 billion. Analysts warn that domestic FX demand could pressure already thin reserves.
Inflation expectations have also increased, with forecasts for 2025 and 2026 ticking higher. Market participants now see inflation at 30% for 2025, with further depreciation expected in the Turkish lira, potentially reaching 45 USD/TRY by next year.
Overall, while stability in the policy rate remains the base case, a surprise tightening move by the CBRT is considered a real possibility by both domestic and international observers.
