Morgan Stanley Expects the Central Bank of Turkey to Kick Off Rate Cuts with a 200 Basis Points Reduction

Morgan Stanley (NYSE:MS) stated that, "Considering the latest communication from the Central Bank of Turkey (CBRT), we expect interest rate cuts to begin with a reduction of 200 basis points." However, they also noted that due to the ongoing uncertainty regarding the minimum wage, they believe risks are skewed towards a smaller rate cut. "We expect forward guidance to indicate a tight stance. Higher real interest rates will continue to support the currency," they assessed.

Morgan Stanley remarked, "We believe that following a 200 basis point rate cut in December, it may be consistent with this guidance to have two additional cuts of 200 basis points each by the first quarter of 2025, leading to a policy rate of 44% by March." They project, "We see headline inflation falling to 39% by March, which indicates an average ex-post real policy interest rate of approximately 5 percentage points in the first quarter of 2025. Whether these real levels are sufficiently tight will be determined by future data."

They also expressed, "Given the ongoing uncertainty regarding minimum wage and administered price increases in the new year, we believe that risks are currently skewed towards a smaller or less aggressive cut than we are currently accounting for."