Eyes turn to Central Bank after September inflation release

ISTANBUL

Eyes are now on the Central Bank after inflation in September came in above expectations, while Governor Fatih Karahan has reiterated that the bank will maintain its tight stance.

Last month, consumer prices rose 2.97 percent, accelerating from 2.47 percent in August. The September print was also above the market forecast of 2.2 percent.

The annual inflation rate declined to the 14-month low of 49.34 percent, which was, however, also higher than analysts' forecast of 48.3 percent.

The higher-than-expected inflation led analysts to revise their expectations for a rate cut.

Before the release of the September inflation numbers, some economists had forecast that the bank would start reducing the main policy rate by the end of the year, with some even predicting a cut as early as November.

"The smaller-than-expected decline in Türkiye’s headline rate in September will be a disappointment to policymakers at the Central Bank," Nicholas Farr, emerging Europe economist at the London-based Capital Economics, said in a note to clients.

He said the figure showed that a monetary easing cycle was unlikely to start until 2025.

The central bank’s policy rate at 50 percent is now higher than the annual inflation rate for the first time since 2021.

Speaking at parliament’s planning and budget commission on Oct. 3, Karahan reiterated that the bank would maintain its tight stance decisively until price stability is achieved.

He told lawmakers that there are two main criteria for them: A significant and permanent decrease in the main trend of monthly inflation and the convergence of expectations to the bank's forecast range.

“We assess that there is still some distance to be covered in both criteria. Therefore, we will continue to maintain our tight monetary stance,” Karahan added.

In its latest inflation report, the bank said it sees inflation at 38 percent at the end of this year and 14 percent in 2025.

“We expect the Central Bank to keep the policy rate higher for longer,” JP Morgan economists said in a note, commenting on the September print.

They expect the bank to deliver the first 250 bps rate cut in January 2025.

Chances of rate cuts to start in November now look slim, analysts at Morgan Stanley said.

“We continue to expect rate cuts to start in the new year after the resolution of uncertainty around new year wage and price hikes,” they said.

The October inflation data will be crucial, according to analysts at Barclays.

“Our base case remains that the first cut will be of 250 bps in November. However, if the October CPI print is also unsatisfactory, i.e. above 2 percent month-on-month, we think the Central Bank could consider delaying its first rate cut to December or January,” they said.