Turkish Central Bank Takes Cautious Approach Ahead of Next Rate Cut

According to Bloomberg, the Turkish Central Bank is set for another interest rate cut on Thursday, supported by better-than-expected inflation data that has boosted the confidence of policymakers. The only question remains: What is the expected size of the cut?

A Bloomberg survey of 23 economists indicates that nearly all expect Governor Vahit Karahasan and the monetary policy committee to lower the benchmark interest rate by at least 100 basis points to 38.5%. However, some analysts believe the cut could be larger, reaching 250 basis points.

One of the fastest easing cycles among emerging markets

The Turkish Central Bank has reduced interest rates by 1100 basis points since July, making it one of the most aggressive easing cycles among major emerging economies. These cuts have occurred despite inflation slowing down more slowly than expected, with prices still rising over 47% year-on-year.

Markets are awaiting the release of November inflation data this month, which will be critical for the central bank's decision. Although the year-end inflation target of 38% seems out of reach, a monthly slowdown in price increases may give policymakers confidence to implement a larger rate cut.

According to Hakan Kara, former chief economist at the Turkish Central Bank and current economics professor at Bilkent University in Ankara:

“We expect a cut of 150 basis points this week. The recent improvement in inflation expectations and relative stability of the lira open the door for a bolder step.”

Markets Await Future Policy Guidance

Investors are also looking for any signals regarding the future trajectory of monetary policy. Karahasan stated last month that the bank would continue to take steps cautiously, based on inflation trends and medium-term targets, while also confirming the bank's readiness to tighten again if the disinflation process deviates from its path.

A Strong Economy… But Slowdown Looms

The Turkish economy, worth 1.1 trillion dollars, has shown strong resilience this year, growing by 3.6% in the third quarter despite tight monetary policy. However, forecasts indicate a sharp slowdown in 2026, as high borrowing costs and rising prices will affect consumption and investment.