US Investment Bank Forecasts for Turkey: Interest Rates and Inflation

Morgan Stanley, one of the leading US investment banks, has released new projections for Turkey’s economy. The bank expects the Central Bank of the Republic of Turkey (CBRT) to gradually cut its policy rate to 37 percent by the end of 2025 and further down to 26 percent by the end of 2026. At the same time, inflation is forecast to ease to 30 percent in 2025 and 21 percent in 2026.

Gradual Rate Cuts Ahead

According to Morgan Stanley’s report following a recent visit to Turkey, the CBRT is likely to proceed with cautious rate cuts while keeping real interest rates relatively high. The report underlined that maintaining stability in monetary and fiscal policy under the newly announced Medium-Term Program (OVP) would strengthen the country’s resilience against external shocks.

The OVP also emphasizes moderate growth and gradual fiscal consolidation as tools to fight inflation. The alignment of government-set wages and prices with inflation targets is expected to reinforce disinflation efforts. Morgan Stanley highlighted that the significant fiscal adjustment seen since the second quarter of 2025 could support domestic demand balance and pave the way for further disinflation.

Policy Space for the Central Bank

The bank pointed out that the CBRT still has policy space thanks to its reserves, interest rate tools, and macroprudential measures. This position, according to Morgan Stanley, will help sustain currency stability and limit demand for foreign exchange despite domestic challenges.

While inflation will remain a concern in 2026, the report suggests that resilience in domestic demand, sticky service inflation, and elevated expectations will keep the disinflation process slower than government targets. Nonetheless, projections foresee inflation moderating to 30 percent in 2025 and 21 percent in 2026.

Investor Outlook

Morgan Stanley added that investors may continue to prefer short dollar–lira carry trades as long as the CBRT maintains its cautious stance. The one-year OIS curve is also expected to remain attractive. With continued support for the reform program, the country’s risk premium is expected to stay stable in the near term. The bank anticipates that new issuances will concentrate in the middle section of the curve, leading to marginal flattening in the 10-to-30-year maturities.

Keywords:
#Turkey, #US, #bank, #Morgan, #Stanley, #Central, #Bank, #policy, #interest, #rate, #inflation, #forecast, #economy, #growth, #program, #medium, #term, #fiscal, #monetary, #reserves, #currency, #stability, #domestic, #demand, #reform, #risk, #premium, #investor, #market, #lira