Market News

By Tugce Ozsoy and Beril Akman

(Bloomberg) -- Analysts are now expecting the Turkish central bank to deliver sizable interest-rate cuts at every policy meeting in 2025 following Thursday’s bigger-than-expected reduction, despite officials cautioning against an uninterrupted easing cycle. 

The monetary authority lowered its benchmark one-week repo rate to 47.5% from 50% in the first such move in nearly two years, while narrowing its rates corridor, a move deemed hawkish. 

To reinforce the point, policymakers also emphasized that the timing of further cuts would be data-dependent. That still didn’t stop many analysts from penciling in further and larger rate reductions for next year, when the bank is scheduled to hold eight policy meetings, down from 12 this year.

The lira dropped about 0.3% on Friday to trade at 35.2678 per dollar, bringing its losses over the past four weeks to 1.8%. That’s the sixth worst performance among 23 emerging-market currencies tracked by Bloomberg during the same period.

Below is a summary of the new estimates Bloomberg compiled following the latest policy meeting:

After Thursday’s cut, Morgan Stanley economists said they see the rates at 42.5% by March compared to their previous forecast of 44%, with two 250 basis-points cuts in the first quarter. 

The next two meetings are scheduled for Jan. 23 and March 6.

Both Okan Ertem of Turkiye Ekonomi Bankasi AS and Barclays Plc economist Ercan Erguzel said they now expect 250-basis-points cuts in all eight meetings scheduled for next year.  

That would bring down the rates to 27.5% at the end of the year. Previously, Erguzel expected that level to be reached by August and then maintained until the year-end. 

The reduction in the number of central bank meetings means the size of reductions might be larger, according to QNB chief economist Erkin Isik. 

“We think chances of 250-basis-points cuts in both meetings in the first quarter are strong,” he said, while predicting the one-week repo rate will fall to 28.5% by the end of the year.

Citigroup Inc. analysts including Ilker Domac forecast rates to be at 30% during the same period. They warned a “more accommodative stance” from policymakers could reduce appetite for lira assets.

Goldman Sachs Group Inc. analysts maintained their forecast of 39% rates by June, saying the risks to their call — such as the new policy meeting schedule — are “small.”

Deutsche Bank analysts Yigit Onay and Christian Wietoska said the bank’s emphasis on data-driven decisions will likely see policymakers pause easing after setting the policy rate at 45% in January. The authority will eventually lower the key rate to 30% by end-2025, they said.

The central bank said in November that it expects consumer inflation to slow to 21% by the end of 2025, compared to 47.1% last month. It will unveil its next quarterly outlook on prices in February, which will serve as the authority’s new, short-term goals. The bank’s official target is 5%.

Market Metrics

• USD/TRY +0.3% to 35.2856 as of 10:36 a.m. in Istanbul
• 5-year CDS -3bps to 259bps
• Borsa Istanbul 100 Index +0.6% to 10,007 points
• 10-year benchmark lira bond yield -23bps to 29.4% on Thursday
• U.S. Treasury 10-year bond yield flat to 4.59>#/li###
• Brent crude little changed at $73.29 per barrel

(Updates with comments from Deutsche Bank in 14th paragraph. An earlier version of this story was corrected to show that some of the banks projected 250-basis-points cuts.)