WOOD Flash – Türkiye macro: MPC takes a pause, but hiking cycle not over yet

Yesterday (25 April), the Monetary Council kept the policy rate unchanged, at 50%, in line with our expectations, while maintaining a hawkish demeanour. Financial conditions have tightened materially following the March rate hike, which might lead the Council to extend the pause. The revealed preference, in our view, is still to calibrate growth carefully at around a 3% trend next year, rather than triggering a sharp slowdown, which could lead to job losses. Nevertheless, the risks for the inflation outlook are leaning towards the upside, and both economic momentum and credit dynamics have not moderated sufficiently yet to improve inflation sustainably. Therefore, we anticipate the last leg of tightening to unfold in the coming months, with the policy rate likely peaking at 55% this year, before declining to 42% by the end of 2025E. Furthermore, we delve into more detail in the scope for consolidation for the current account – which we see as meaningful - while funding is looking robust and comfortably for this CA trajectory.