Türkiye’s annual inflation eased to 49.38% in September, yet a sharp monthly increase of nearly 3% – well above expectations – prompted caution from the central bank and tempered hopes for early interest rate cuts.
At 50%, the Central Bank of the Republic of Türkiye’s (CBRT) policy rate is now higher than the annual consumer price index (CPI) for the first time since 2021, marking a milestone in an aggressive tightening cycle meant to curb soaring prices.
But after the surprisingly high price measures last month, boosted in part by education-related costs, CBRT Governor Fatih Karahan said there remains “some distance to cover” before achieving the bank’s two main inflation goals.
Addressing Parliament after the data was released on Thursday, Karahan said the two conditions were: a significant and permanent decrease in the main trend of monthly inflation, and the convergence of expectations to the bank’s own forecast range.
He said September inflation was well above the bank’s expectations and stressed the upward risks were clear.
Some analysts said the bank was unlikely to be able to ease policy until December at the earliest and perhaps not until next year.
Wall Street bank Goldman Sachs said on Friday it expects CBRT to cut rates in January, rather than a previous forecast of November.
Sequential inflation remains “well above the level we think is necessary” for the bank to start cutting rates, it said.
“Lack of a slowdown in inflation and the continued erosion of households’ purchasing power also raises the possibility of a higher minimum wage increase in December and adds to upside risks to inflation for next year.”
Another Wall Street bank, JPMorgan also said it expected easing to begin in January, after having earlier predicted November. Capital Economics said a rate cut this year looks “very unlikely.”
Month-over-month inflation was 2.97%, according to the Turkish Statistical Institute (TurkStat), above a Reuters poll forecast of 2.2%. Annual CPI was also higher than the poll forecast of 48.3%.
In August, monthly CPI was 2.47%, with the annual rate at 51.97%. The central bank is closely watching the monthly rate for signals of when to begin easing, though it has only dipped below 2% once this year, in June.
Last month, a Reuters poll showed a growing minority of analysts expecting a first cut next year, with the consensus settled around November and expectations of at least 20 points of easing by the end of 2025.
More hawkish shifts could come.
Haluk Bürümcekçi, founding partner at Bürümcekçi Consulting, said an imminent cut is unlikely. Even if October inflation is in line with the central bank’s guidance, he said, “it may not be sufficient” for a November cut.
Tight policy
The domestic producer price index was up 1.37% month-over-month in September for an annual rise of 33.09%, the data showed.
Annual inflation in September was driven by a 97.9% rise in housing prices, with education prices soaring 93.59%. Prices of the key food and nonalcoholic drinks rose 43.72%, below the overall level.
Last month, the central bank held rates steady at 50% for a sixth straight month, saying it remained highly attentive to inflation risks. But it removed a reference to potential tightening, seen as a first signal that easing would eventually come.
In a presentation to Parliament’s Planning and Budget Commission, Karahan said the central bank would maintain its tight stance decisively until price stability is achieved.
He said the disinflation process has started as the central bank predicted, and macroeconomic indicators are in line with this process.
Separate central bank data released last week showed that households’ expectation of annual inflation 12 months ahead was 71.6% in September, well above market expectations of 27.5%.
The bank, which has hiked rates by 4,150 basis points since June last year, sees inflation falling to 38% at the end of this year and 14% next. The government sees inflation at 41.5% at the end of this year.
Goldman Sachs on Friday raised its year-end inflation forecast to 44% from 40%.
