ING analyst Frantisek Taborsky anticipates that the Central Bank of the Republic of Türkiye (CBRT) will maintain its policy rate at 37% in the near term, following the normalization of liquidity conditions and a reduction in the effective funding rate from 40% to the policy rate level [1]. The decision to keep rates unchanged is attributed to the recent resumption of weekly repo auctions and the need for further evidence of sustained disinflation before easing can resume [1].
Looking ahead, ING projects that weaker-than-expected second quarter GDP data and a gradual decline in inflation will provide room for two 100 basis point rate cuts in the fourth quarter, bringing the policy rate down to 35% [1]. Market participants have already priced in a dovish trajectory, with the CBRT rate expected to reach 34.50% by year-end, according to market pricing [1]. However, there is skepticism regarding the extent of easing in 2025, with only about 100 basis points of cuts priced in for next year [1].
The foreign exchange outlook remains largely unchanged, with long Turkish lira positions having returned to pre-US-Iran conflict levels despite the CBRT's dovish stance in August and the possibility of renewed easing [1]. ING maintains its forecasts for the USD/TRY exchange rate at 52 by the end of 2024 and 63 by the end of 2027 [1]. Additionally, the ongoing recovery in central bank foreign exchange reserves is expected to bolster investor interest in the Turkish lira carry trade [1].
CONCLUSION
ING expects the CBRT to hold rates steady in the short term, with gradual easing likely in the fourth quarter as disinflation continues. Market pricing reflects a dovish outlook for 2024, but skepticism remains about further cuts in 2025. The Turkish lira is supported by recovering FX reserves and stable long positioning.