Deutsche Bank Analyzes CBRT's Rate Cut and Minimum Wage Increase

Deutsche Bank has made economic assessments following the interest rate cut by the Central Bank of the Republic of Turkey (CBRT) and the minimum wage increase. The bank highlighted the high inflation momentum at the beginning of the year, the increased demand for foreign currency during the winter months, and the uncertainties in the inflation outlook.

After the CBRT's latest Monetary Policy Committee (MPC) meeting, where a 250 basis point interest rate cut was decided, Deutsche Bank published an assessment note. The note indicated that setting the policy rate at 47.5% signifies the beginning of a new easing cycle after maintaining a 50% rate since March 2024. The bank also mentioned that the CBRT's decision to reduce the number of MPC meetings from 12 to 8 in 2025 aims to facilitate larger adjustments at each meeting. The lack of a surprising upward adjustment in the minimum wage was also considered a factor enabling the CBRT to start a more aggressive interest rate cut strategy.

Narrowing of the interest corridor and fewer meetings
Deutsche Bank noted that narrowing the interest corridor from 300 basis points to 150 basis points limits the CBRT's flexibility in adjusting the effective policy rate. The bank argued that this change, coupled with the decrease in the number of MPC meetings, signals a more hawkish policy framework, and mentioned that they anticipate a more cautious interest rate policy in the near future.

Deutsche Bank maintained its inflation forecast of 25.4% and a policy rate of 30% for the end of 2025, but predicted that future policy decisions would be shaped by a data-dependent approach. The bank suggested that due to high inflation at the beginning of the year, the demand for foreign currency during winter, and increasing uncertainties, the CBRT may adopt a more cautious stance in the first quarter. According to the bank, the CBRT, which set the policy rate at 45% in January, may pause interest rate cuts in March. Following this, they predict that the easing cycle will continue at a pace of 250 basis points, with the policy rate expected to reach 30% by the end of 2025. However, it was also emphasized that there are significant uncertainties due to the CBRT's data-dependent approach.

A pause may occur in the March meeting
According to Deutsche Bank's assessment, the minimum wage increase occurred in line with the bank's forecasts. The bank predicts that the CBRT, which set the policy rate at 45% in January 2024, will pause in March. After the first quarter, it is expected that interest rate reductions of 250 basis points will continue.

The bank states that the development of inflation dynamics, global risk appetite, and the portfolio preferences of local investors will be critically important for the timing and magnitude of interest rate cuts in the upcoming period. These factors will play a significant role in the Central Bank's policy decisions and could lead to increased uncertainties as dynamic influences.