WOOD Flash - Türkiye macro: CBT cuts again, signalling potentially deeper reductions
Yesterday (23 January), the Monetary Council of the CBRT reduced the policy rate for a second time, and shifted the tone in the statement to a more dovish forward guidance, with the omission of cautious references and a stronger emphasis on the bank’s inflation forecast. We interpret this as implying its intention to front-load the easing cycle and leads us to reduce our forecast for the policy rate to 38% this year, from 40% previously. The CBRT’s inflation forecast for end-2025E is 21% yoy, which is unrealistic, in our view, given the upturn in activity already visible, and the strong inertia of price setting behaviour. Suspending the often-delivered July minimum wage increase would help deliver a faster disinflation process, but we believe it is too soon to make a firm bet on that happening. The last two MPC decisions accentuate the depreciation risks for the TRY, in our view, but do not yet make another sizeable depreciation an inescapable scenario.
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