MNI CBRT WATCH: 150Bps Cut Expected As Progress Continues

The Central Bank of Turkey is expected to cut key interest rates by up to 150 basis points again this week, despite a likely jump in January’s monthly inflation following a lower-than-expected number in December. (See MNI CBRT WATCH: Cuts 150 Bp, Underlines Continued Tight Policy)

The CBRT lowered its policy rate to 38% last month as falling food prices pushed year-end inflation down to 30.89% (+0.89 MoM), with the overnight lending- and borrowing rates lowered by the same margin, to 41% and 36.5%, respectively.

The underlying trend in inflation declined “slightly” in October and November, the CBRT said, with demand conditions supporting the disinflation process, and inflation expectations, while still posing upside risks, continuing to show signs of improvement. 

Moreover, as Governor Fatih Karahan noted in recent presentations to investors in London and New York, inflation over the next two months “might be noisy but lower inertia in services will support disinflation over 2026.”

While January’s monthly inflation is likely to come in in excess of 3% due to a rebound in food prices and upwards adjustments to administered prices and the minimum wage, the CBRT should still be able afford to cut again, albeit at a slower pace. (See MNI INTERVIEW: CBRT To Look Through Early 2026 Inflation Rise)

The case for cutting 150 basis points rather than 100-125bp may be further supported by the absence of a monetary policy meeting in February, with rate-setters looking to gradually bring real rates down from 8% to around 5% by the end of this year.

Whether the CBRT can achieve the 19% inflation rate Finance Minister Mehmet Simsek earlier this month suggested is achievable remains to be seen. But the Bank appears increasingly confident that, barring shocks, it can get within a few percentage points of that figure.

Nevertheless, Karahan will once again emphasise that the central bank, supported by fiscal policy, will do whatever is needed to bring inflation into line with interim targets, and that the size of cuts will be reviewed “prudently on a meeting-by-meeting basis with a focus on the inflation outlook.”