Wall Street Split On Turkiye's Likely First Rate Cut In Years

(MENAFN- Gulf Times) Turkiye's central bank is expected to deliver its first interest rate cut in nearly two years today, with major banks divided on the size of the reduction.
Policymakers led by Governor Fatih Karahan will lower the benchmark rate of one-week repo to 48.25% from 50%, according to the median estimate in a Bloomberg survey of analysts.
Predictions vary in the absence of clear guidance by the central bank. JPMorgan Chase & Co and Deutsche Bank AG expect a 150-basis-points cut while Citigroup Inc and Bank of America Corp are penciling in a reduction of 250 basis points. Some officials have called for caution against what investors might perceive as aggressive moves, as the bank prepares to reverse its most aggressive tightening cycle in years.
“Looking ahead, we expect the central bank to lower rates at nearly all of its monthly meetings next year, cutting the policy rate to 25% by end-2025. The easing of financial conditions will also feature looser macroprudential rules - we especially see the central bank focusing on this in the second half of the year,” says Selva Bahar Baziki, economist at Bloomberg.
Still, some investors expect the bank might opt for a more cautious approach. That was reflected in a report by Goldman Sachs Group Inc economists, who said the monetary authority will likely hold rates for a ninth month with elevated levels of inflation and loan growth making a rate cut“premature” at this point.
Governor Karahan boosted market expectations for lower borrowing costs at this year's last inflation report presentation, saying demand and services inflation were slowing. That was also reflected in the last Monetary Policy Committee policy statement.
That shift was followed by a slight deterioration in markets' outlook on prices, a key parameter for policymakers as they decide on the rates trajectory. Households and businesses' inflation expectations also remain elevated. The bank has sought to assuage concerns, saying that lower borrowing costs wouldn't necessarily result in looser policy.
Deputy Governor Cevdet Akcay told investors that the bank's stance will remain tight and any easing cycle doesn't necessarily have to be uninterrupted, Bloomberg reported last month.
Analysts say the expected rate cut might be accompanied by additional measures, including the narrowing of the so-called rates corridor. Such a step would be“a hawkish signal” to investors, Deutsche Bank analysts Yigit Onay and Christian Wietoska wrote in a report.
The bank's overnight borrowing and lending rates - which mark the lower and upper end of the rates corridor - currently stand 600 basis points apart. A narrower band is usually welcome by markets because it allows for greater predictability over the future of rates.
The central bank has also sought greater fiscal support in slowing prices. The government's decision to raise the minimum wage by 30% in 2025 was therefore welcomed by markets.
Subdued growth in purchasing power will keep demand in check and allow the central bank to lower rates at a steady pace, according to economists.
More than a third of the labour force earns the minimum wage and this year's 49% increase caused an uptick in inflation, making it difficult for the monetary authority to contain price pressures.
The central bank raised its inflation estimates last month, seeing annual price growth at 44% at the end of this year and at 21% at the end of 2025. Consumer price growth slowed to 47.1% last month, nearly ten-fold the official target of 5%. December inflation data will be announced on January 3.
Officials prefer focusing on seasonally-adjusted monthly inflation, which accelerated in November.

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