BBVA Research: The New Meeting Dates of TCMB Are Crucial for Understanding the Evolution of Real Rates

Following the meeting of the Monetary Policy Committee of the Central Bank of the Republic of Turkey (TCMB), BBVA economists Adem İleri and Seda Güler Mert provided an assessment to their investors, noting that the number of meetings has been reduced from 12 to 8. They stated, "The distribution of meeting dates will be crucial in understanding how real rates will evolve." The economists mentioned, "Once we understand the distribution of meetings planned for next year, we will revise our interest rate predictions." The evaluations of the BBVA Research economists are as follows: "By reducing the number of meetings from 12 to 8 within the framework of its 2025 monetary policy, the TCMB has signaled that it may begin to ease more boldly, thus making room for a wait-and-see period. Additionally, in the current MPC decision, the TCMB appears to feel more comfortable regarding the inflation outlook, likely following the decision to increase the minimum wage by 30%. However, uncertainties remain regarding how administrative price increases and tax adjustments at the beginning of the year will influence monthly inflation trends upward in early 2025. In this context, the TCMB commits to acting prudently on a meeting-by-meeting basis with a focus on the inflation outlook, and will effectively use monetary policy tools should a significant and lasting deterioration in inflation be anticipated. As a result, the easing cycle has begun with a higher-than-expected interest rate cut, and a balanced and cautious communication approach has been attempted based on data. The distribution of meeting dates will be crucial in understanding how real rates will evolve. Overall, it appears that TCMB will commence the easing cycle with the comfort provided by the expected coordination with fiscal policy. Nevertheless, we remain cautious regarding our inflation expectations and are analyzing how the monthly inflation trend will move upward in the first months of the year. We forecast that December's monthly inflation will be 1.6%, with the monthly inflation trend rising to 2.5%. Domestic demand has so far slowed only marginally compared to the much weaker total supply, and although financial conditions are tight, they have begun to loosen since the summer, keeping inflation expectations high. Therefore, the price adjustments made at the beginning of the year may lead to an inflation trend of 2.5-3% in Q1 2025, while according to our expectations, this rate is expected to fall to 2-2.5% in Q2 2025 and to 1.5-2% in H2 2025. Thus, we remain cautious about our funding interest rate expectation of 31% for the end of 2025, and we expect the TCMB to maintain credit growth limits on consumer loans as long as necessary to support the normalization of domestic demand. We will revise the path of our interest rate forecasts once we understand the distribution of meetings planned for next year."