No interest rate cuts this year ?...

Following the inflation data released last week, foreign financial institutions have begun to revise their forecasts regarding Turkey. Nearly all institutions agreed that "the Central Bank of the Republic of Turkey (CBRT) will wait a bit longer for easing." Perhaps the most significant opinion was this: "The disinflation process will continue, but we are doubtful about its success in the medium term."

International organizations have raised their year-end inflation targets above 45%, but it seems they have understood how adept TURKSTAT is in this regard. The Consumer Price Index (CPI) rate announced yesterday seemed to be adjusted so as not to embarrass the economic management, which has been saying for weeks, "The annual CPI will be below 50%."

Besides this, I also see that international institutions are gradually approaching my 2025 inflation target. A large majority state that they predict a CPI of 23% for 2025. A small number of foreign banks say that while a 250 basis point cut will not happen in November, it will occur in December, with significant reductions expected in 2025. Still, there are those who approach the situation with caution, stating, "Let's not make a definite judgment without seeing the inflation rate for October."

Many analysts believe that if a CPI above 2% is announced in October, the interest rate cut will be postponed. Economists from American capital banks stated, "The cut in November has been shelved; we are now looking to January." CBRT President Fatih Karahan even appears to acknowledge that the economic management's program, which has been ongoing for nearly a year and a half, has not reached its target by saying, "We do not see a permanent decline yet."

Under these conditions, I believe it would not be an exaggeration to say that there is a high likelihood of closing the year 2024 with a policy interest rate of 50%.

Of course, if the third quarter growth figure causes political concern, the CBRT may initiate a cut in December. I am not ignoring this possibility either.

Prof. Alkin