UBS Maintains "Temporary" Expectation of TCMB's Rate Cut in January

Forex - UBS has indicated that the Central Bank of the Republic of Turkey (CBRT) might consider easing the policy rate by 250 basis points to 47.5% in December. However, they maintain their expectation that interest rate cuts will begin in January.

"Changes in the Monetary Policy Committee (MPC) statement do not necessarily mean that a rate cut will occur in December; however, it is likely that a path in this direction is being followed," said UBS, adding that they believe there are at least four key indicators the CBRT would want to wait for and evaluate before the decision on December 26. These indicators are: "a) November CPI data (to be announced on December 3), b) the outcome of minimum wage negotiations beginning in December 2025, c) inflation expectations data - to see if the gradual decline in expectations continues (including households and businesses); and d) the voting on the 2025 budget."

UBS emphasized that if incoming data portrays a moderate picture regarding inflation and inflation expectations, if the minimum wage agreement is consistent with further disinflation (around 30% or lower), and if fiscal restrictions are in line with plans, the CBRT might consider easing by 250 basis points to 47.5% in December.

"For now, we maintain our call for the easing cycle to begin in January. We remain committed to our expectation that the CBRT will start its easing cycle by lowering the policy rate to 47.5% in January 2025," UBS stated, adding, "We believe that the incoming data, which we will reassess close to the December MPC meeting, will determine when the CBRT begins its first rate cut. In our view, it is likely that the CBRT will lower the policy rate to 30% by the end of next year."