Turkey’s central bank is likely to scale back its planned interest rate cuts after inflation in August came in above expectations, JPMorgan said on Wednesday, according to Reuters.
Consumer prices rose nearly 33 percent year on year last month and more than 2 percent on a monthly basis, driven largely by food and services. The stronger reading came just two days after official data showed the economy grew by 4.8 percent in the second quarter, beating forecasts.
In a research note cited by Reuters, JPMorgan said it now sees upside risks to its year-end inflation forecast of 29.5 percent, pointing to a reversal in earlier declines in food prices and strong domestic demand. The bank expects annual inflation to climb to 31.8 percent in September, in part because of seasonal back-to-school price increases in services.
The central bank is scheduled to hold its next policy meeting on September 11. JPMorgan said it now expects a rate cut of 200 basis points at that meeting, down from its earlier forecast of 300 basis points. It also projects further 200-point reductions in October and December, which would bring the policy rate to 37 percent by year-end. That is slightly above the bank’s previous forecast of 36 percent.
“The central bank is likely to keep the policy rate well above headline CPI inflation to prevent dollarisation among Turkish residents, especially in light of recent political turmoil,” JPMorgan said in the note quoted by Reuters.
Turkey’s central bank began lowering rates in December 2024 after holding them steady for eight months. But it briefly reversed course in March and April of this year, hiking tham by 350 basis points to 49 percent after markets were rattled by the arrest of İstanbul Mayor Ekrem İmamoğlu, President Recep Tayyip Erdoğan’s main political rival. It resumed easing in July, cutting the policy rate to 43 percent.