Goldman Sachs Maintains Expectation for First Rate Cut from TCMB to Be 100 Basis Points in January

Goldman Sachs stated in a client note assessing the decisions made and the announcement released during the TCMB Monetary Policy Committee meeting held yesterday, that they maintain their expectation for the first interest rate cut to be 100 basis points in January. They noted that the evaluation concerning inflation and the output gap in the published PPK statement aligns with their views and forecasts. Goldman Sachs remarked, "The change in guidance did not surprise us. Verbally, the management has conveyed similar messages in recent months: the barrier for further rate hikes is very high, and guidance needs to be more balanced while preparing for a cutting cycle."

They emphasized their continued expectation of a small reduction of 100 basis points in January. "The Central Bank's year-end inflation forecast of 44% aligns with our estimate. This forecast requires an average inflation rate of 1.5% in November and December. In our view, this is realistic; however, considering past upward surprises, we believe that the Bank would want to see inflation falling in line with forecasts before starting a loosening cycle," they assessed.

Goldman Sachs also indicated that they think the TCMB would want to wait to determine the minimum wage increase in January and how it would affect inflation. They pointed out that President Erdoğan's comments regarding the wage increase were notable; he linked the increase to expected inflation rather than backward-looking inflation, adhering to the recommendations of the TCMB and economic policymakers. Furthermore, he clearly stated that the expected increase would be positively impactful in real terms. Therefore, they continue to believe that economic policy (aside from the TCMB's interest rates) will be determined in a way to avoid significantly negative growth. Thus, they stated that the TCMB will need to maintain a quite restrictive policy stance in the upcoming quarters.