The monetary policy committee (MPC) of Turkey’s central bank on October 17 kept its policy rate unchanged at 50% for the seventh straight month in line with market expectations (chart).

In September, the underlying trend of inflation posted a slight increase, the authority noted in a press release, adding that the uncertainty regarding the pace of improvement in inflation has increased in light of incoming data.

Core goods inflation remains low while the MPC still expects improvement in services inflation to occur in the last quarter.

However, inflation expectations and pricing behaviour continue to pose risks to the disinflation process, according to the authority.

The MPC will keep its tight stance until a significant and sustained decline in the underlying trend of monthly inflation is observed and inflation expectations converge to the projected forecast range.

Easing expectations delayed

The next MPC meeting is scheduled for November 21. The rate-setters at this point look poised to again stick with the 50% benchmark.

In the current circumstances, expectations regarding the beginning of the easing cycle have been delayed from 4Q24 to 1Q25.

On November 29, TUIK will release its official GDP data for 3Q24. Figures that declare a technical recession has taken hold are on the cards.

Central bank tracks monthly inflation

On October 3,  the Turkish Statistical Institute (TUIK, or TurkStat) said that Turkey’s consumer price index (CPI) inflation officially stood at 49% y/y in September versus 52% y/y in August.

TUIK also posted monthly official inflation of 2.97% for September after releasing 2.47% for August while also releasing seasonally-adjusted inflation of 2.80% for September and 2.83% for August.

In the coming months, TUIK is set to deliver further outcomes in the 1-2%s for the official monthly headline indicator.

The central bank also tracks inflation expectations via its monthly "Sectoral Inflation Expectations" and "Survey of Market Participants" releases.

End-2024 inflation at above 42% y/y

On August 8, Turkey’s central bank kept its end-2024 official inflation "target" unchanged at 38% in its latest quarterly inflation report.

The upper boundary of the forecast range was also left unchanged at 42%.

The inflation report also reiterated that average "seasonally-adjusted" official monthly inflation would decline to 2.5% in 3Q24 (realisation: 3.06%) and to below 1.5% in 4Q24.

On November 8, the central bank will release its next inflation report and updated forecasts.

As things stand, the Erdogan regime is getting ready to release an official inflation figure at above 42% y/y for December.

ECB delivers another 25bp cut

Looking at the global markets, the European Central Bank (ECB) on October 17 delivered another 25bp cut.

So far, the ECB has delivered three rate cuts that have brought its deposit facility rate to 3.25%. It stood at 4.00% in September 2023, 3.75% on June 12 and 3.50% on September 18.

The Federal Reserve (Fed) is also expected to introduce another 25bp rate cut at its next open market committee meeting, set to be held on November 7.

So far in its easing, the Fed has delivered a cut amounting to 50bp. It brought the upper limit of its federal funds target range to 5.00% on September 18 from 5.50% in July 2023.

Turkey’s CDS remain below the 300-level, while the yield on the Turkish government’s 10-year eurobonds remains below the 7%-level.

The possibility of some "short-breathed" turbulence at the beginning of November (due to seasonal fluctuations prior to the beginning of the new year rally along with the presidential elections in the US scheduled for November 5) should not be excluded. 

However, with the beginning of the new year rally, the easing atmosphere will be more strongly felt.

Smooth nominal devaluation, real appreciation

Since end-August, the Erdogan administration has turned to its straight-line policy in the USD/TRY rate. The pair is currently drawing a line around the 34-level.

With September, carry trade inflows and eurobond sales resumed. There is now a short window ahead for renewed inflows prior to the possible shake-up in November.

As things stand, the Erdogan administration's smooth nominal devaluation and real lira appreciation policy remains on track.