Turkey's ongoing economic rebalancing process has seen falling inflation and the current account deficit, stabilizing single-digit unemployment, and a slowdown in real economic activity.
While hopes of a rate cut are growing, so are doubts about the dollar's potential to appreciate.
The Central Bank of the Republic of Turkey (CBRT) reaffirmed its commitment to maintaining a tight monetary stance and hinted that interest rates could be cut as early as September.
Notably, international analysts have predicted that the dollar could reach ₺36.00 by the end of the year.
Inflation, current account deficit
Recent data suggests that Turkey's rebalancing of the economy is paying off, with the latest Consumer Price Index (CPI) figure for June coming in well below expectations and signaling progress in tackling inflation.
The CPI figures for March, April and May were above 3% on a monthly basis, but in June it fell sharply to 1.64% compared to market expectations of 2.2%.
Sectoral challenges remain
While inflation is declining overall, certain sectors, such as “Restaurants and Hotels,” “Education,” and “Housing Spending,” have CPI readings above 3% for the month, highlighting ongoing challenges in certain sectors.
Employment and real economic activity
During periods of tight monetary policy, one of the key indicators tracked is the unemployment rate.
The latest data for April showed the unemployment rate falling slightly from 8.6% to 8.5%. However, industrial production fell 4.9% in April and the Istanbul Chamber of Industry's (ISO) Turkish Manufacturing PMI index was just below the 50 threshold in both April and May, pointing to a cooling in real sector activity.
Improving the current account balance
The implemented policies had a positive impact on the current account: the current account deficit fell from $57.8 billion in April last year to $31.5 billion in April this year.
This improvement, combined with signs of a slowdown in the real economy, is raising expectations of interest rate cuts.
However, the CBRT reiterated its tightening monetary stance for now.
Expected interest rate cuts
There has been much speculation about when the central bank might cut interest rates, with the earliest expected being September, but some analysts predict it could come as soon as November or in the first quarter of 2025.
Goldman Sachs sees a rate cut by the end of the third quarter, JPMorgan by November, and Morgan Stanley and Barclays in 2025.
Year-end dollar forecast
Speculation is also growing about the dollar's value at the end of the year.
Fitch Turkey analyst Morales: ₺36.00 by year-end HSBC, JP Morgan, BNP Paribas: ₺36.00 by year-end Bank of America: ₺38.00 by year-end Latest TCMB survey: ₺37.75
Even if it moves towards ₺36.00, this would suggest only a 10% upside from the current price over the next six months.