Türkiye's Interest Rate Cut Expected in October

Turkey’s central bank is likely to start cutting interest rates as early as October, according to Mustafa Bagriacik, JPMorgan’s chief executive in Turkey.

These expectations come despite official statements indicating that price reductions may take longer.

“We expect interest rate cuts by the central bank to start in October or November, which will be a sign that inflation is coming down,” Bagryagic said in an interview with Bloomberg.

Bagryagic praised the government's new economic programme for having a significant impact on the markets.

A tough official position

Turkish central bank officials have consistently rejected talk of early easing, Bloomberg reported. Earlier this month, Governor Fatih Karahan stressed the need to meet inflation targets after this year before considering cutting interest rates.

Turkish Central Bank Governor Fatih Karahan stressed the need to meet inflation targets before cutting interest rates (Anadolu)

Since Mehmet Simsek was appointed Treasury and Finance Minister last year, Turkey has seen a marked shift in investor sentiment, stabilizing the lira and attracting tens of billions in inflows.

As a result, the central bank has been able to reduce its foreign currency liabilities at a record pace, helping in its fight against inflation, which peaked at 75.5% in May this year.

The Turkish central bank kept the interest rate steady at 50% on one-week repo operations this month.

Enhanced reserves and market confidence

“Turkey has increased its reserves more in the past year than in the previous five years,” Bagriagic noted, adding that Turkey is now providing greater guarantees to markets and investors.

He said Türkiye's rating is two or three notches higher than its market rating.

Following a two-notch upgrade by Moody's earlier this month, Bagryagic expects further upgrades over the next 12 months, thanks to an improvement in the budget deficit and a relatively low debt-to-GDP ratio of around 35%.

Moody's latest upgrade, the first in 11 years, moved Turkey's rating to B1 from B3, bringing it in line with ratings from Standard & Poor's and Fitch.

Bagryagic also expects an increase in M&A starting in 2025, driven by a shift by international investors from fixed income to equities as the government’s economic program continues to yield positive results.

Green energy transactions were also highlighted as likely to be a driver of M&A activity.