Turkey cenbank to restart cutting cycle with 250 bps move in July

Turkey’s central bank is expected to kick off a renewed easing cycle with a 250 basis-point rate cut to 43.50% next week, as disinflation continues and market turmoil has largely faded, a Reuters poll showed on Wednesday.

All but one of the 17 economists in the July poll forecast the central bank would cut its one-week repo rate at the July 24 meeting. The median forecast was for a 250 basis-point cut to 43.50%, with predictions ranging from 42.50% to 44.50% among those expecting an easing step.

Thirteen respondents expected a cut of 250 basis points, while one predicted the bank to hold rates at 46%.

Most expect rate cuts to continue in the months ahead, with the policy rate falling to 36% by the end of 2025, according to the median of 17 forecasts in the Reuters poll.

The monetary easing will likely to continue through at least the third quarter of 2026, an earlier Reuters poll of economists showed.

If delivered, the move would mark the first cut since a surprise 350 basis-point hike in April, which reversed an earlier easing cycle. That tightening helped stabilize markets after the jailing of Istanbul Mayor Ekrem Imamoglu triggered a sharp selloff in Turkish assets and the lira in March.

Morgan Stanley expects a 250 basis-point cut this month, followed by three additional cuts of the same size to bring the policy rate to 36% by year-end.

“While we expect a rise in the monthly inflation trend in July due to administered price adjustments, we expect this to be temporary given weaker domestic demand (negative output gap) and our expectation for the bank to deliver prudent rate cuts to keep the monetary stance tight,” the bank said.

Annual inflation slowed to 35.05% in June, slightly below expectations. Monthly inflation was 1.37%, with price declines in key categories such as food and beverages reinforcing the central bank’s view that a disinflation trend is taking hold.

Political risks remain on investors’ radar. The lira and Turkish bonds weakened last week after the detention of opposition mayors in Adana, Adiyaman and Antalya in a widening corruption probe.

While prosecutors described the arrests as anti-graft measures, many see them as politically motivated moves against the opposition party CHP.

The central bank will announce its interest rate decision at 1100 GMT on July 24.