MNI INTERVIEW: CBRT Slowdown Needs Better Signalling - Cangoz

The Central Bank of the Republic of Turkey needs to improve its communications after surprising markets with a 300-basis-point cut last week, a former senior government official told MNI, adding that he expected a total of 250bp of easing over the remainder of this year.

Flat May and June inflation data and expected seasonal pressures in July, combined with the lack of a gradual shift in tone ahead of the decision, meant CBRT messaging was too ambiguous going into last week's Monetary Policy Committee Meeting, leading market participants to misjudge the likelihood and size of the cut, said M. Coskun Cangoz, director of the Center for Studies on Fiscal and Monetary Policy at the Economic Policy Research Foundation of Turkey (TEPAV).

Prior emphasis on phrases such as “tight monetary stance,” “decisiveness,” and “lagged effects of tightening” also contributed to a hawkish impression ahead of their removal from the most recent decision statement, he added.

Cangoz, a former senior Turkish Treasury and World Bank official, said the significant gap between the policy rate (46%) and inflation projections meant the CBRT was correct to go for 300bp rather than the 250bps seen by the overwhelming majority of analysts.

However, July’s move should be viewed as a front-loaded adjustment - not a template for future decisions, he said, adding that total cuts of 200–250bp over the rest of 2025 would “not be surprising” if inflation continues to decline as forecast by the CBRT.

“In an environment where inflation and FX pressures could easily return, the absence of strong forward guidance could weaken credibility. Going forward, data-driven and transparent communication will be key to managing expectations,” he said.

SLOWING ECONOMY

Turkey’s economy shows clear signs of slowing, with limited credit demand, rising levels of non-performing loans, stagnant industry and weak household purchasing power, Cangoz said, adding that a 250bp cut might have appeared overly cautious given the downward trend in inflation.

A 350bp cut, by contrast, could have signalled overconfidence amid such persistent risks as a wide budget deficit and entrenched pricing behaviour. The CBRT's decision thus reflected a “measured yet proactive stance." (See MNI INTERVIEW: Lira Strength Key To CBRT Easing Pace- Demiralp)

Inflation is likely to end the year at around 34%, Cangoz said, with July’s gas tariff hike alone adding 0.5–1% to headline inflation, though this could be amplified should firms choose to pass on costs.

“Slower cuts could result from higher-than-expected inflation after July, persistent expectations above 30% through 2026, or renewed lira depreciation et cetera. Faster easing would require a significant inflation surprise on the downside and an easing of global risk factors.”

The CBRT will loosen its macroprudential toolkit to support monetary if credit transmission remains weak, via adjustments to lira loan growth limits or reserve requirements. However, due to the high-risk backdrop of pricing inertia and budget deficits, any loosening should be gradual and well-calibrated to avoid stoking inflation, Cangoz said.

Changes to monthly growth limits for lira-denominated commercial loans may also come, but could depend on confirmation of disinflation in July and beyond, Cangoz said, amid “moderate but rising” inflation risks from global trade tensions.

“Turkey is reliant on imported energy and inputs, so disruptions could feed into cost-push inflation. Export demand could also soften, especially if global trade slows,” he said.

“While some resilience may come from commodity price stability and market diversification, further escalation—especially involving the U.S. and China—could derail 2026 inflation projections.”