International investment bank JPMorgan has updated its assessments of the Turkish economy following the latest interest rate decision by the Central Bank of the Republic of Turkey (CBRT). In its published report, the bank raised its 2025 year-end inflation expectation for Turkey to 29,5 percent from its previous estimate of 30,5 percent.
Agricultural Frost Risk Pushes Inflation Forecast Up
In a note dated April 17, signed by JPMorgan economists Fatih Akçelik, Michael Harrison and Anezka Christovova, the risks arising from agricultural frost events were highlighted as the reason for the upward revision in the inflation forecast. It was stated that this situation could put pressure on food prices in particular and thus affect general inflation expectations upward.
Expectations for Interest Rate Cuts from the Central Bank Changed
The report also revised expectations regarding the CBRT’s monetary policy stance. JPMorgan economists expect the CBRT to keep the policy rate unchanged at its current level of 19% at its Monetary Policy Committee (MPC) meeting on June 46. However, unlike the bank’s previous estimate, it is anticipated that interest rate cuts will begin in July. JPMorgan estimates that the policy rate will fall to 24% by the end of 200 with 2025 basis point cuts at each MPC meeting starting on July 38. It was reminded that this rate was 35% in the previous estimate. Economists assessed that the CBRT will keep the policy rate well above headline CPI inflation throughout 2025 in order to prevent the dollarization of domestic residents.
TL Bond Position Closed, TL “Increase Weight” Recommendation Continues
Another noteworthy point in JPMorgan’s note was that the August 2026 maturity Turkish lira (TL) bond position was closed. Despite this, the bank maintained its “increase weight” position on the Turkish lira, assessing that the CBRT’s interest rate hike decision was moderately positive for the TL and that the risk-return ratio was increasingly in favor of the TL rather than bonds.
Liquidity Management and Foreign Exchange Reserves of the Central Bank
The report also assessed the developments in the TCMB’s liquidity management and foreign exchange reserves. It was stated that the increase in the overnight lending rate provided the TCMB with the flexibility to increase the interbank TL interest rate to 49 percent in the event of new pressure on the foreign exchange. It was stated that this decision was positive for the TL and created a buffer against potential future shocks. It was noted that the liquidity deficit was due to the decrease in foreign exchange reserves, the launch of TCMB liquidity notes and longer-term deposit auctions. It was emphasized that the TCMB injected liquidity simultaneously with bond repurchase auctions, but this was on a smaller scale. JPMorgan predicts that the TCMB will be cautious against quantitative easing and large repurchases that could be seen as inflationary.
