Why the CBRT May Delay Its Next Rate Cut Despite Falling Inflation
Türkiye has finally pulled away from years of runaway inflation. Headline inflation is at its lowest point in years, and sentiment in the markets has improved. Investors are positioning for easing, businesses are preparing for cheaper credit, and households are hoping for relief.
But the Central Bank of the Republic of Türkiye (CBRT) does not appear nearly as eager. While headline inflation is declining, the underlying structure remains problematic. Core inflation is holding firm, services inflation refuses to soften, and pressure on the already fragile Turkish lira continues to build. The top-level numbers may look encouraging — but behind the curtain, the picture is far less comfortable.
In its latest communication, the CBRT signaled that a cut is by no means guaranteed. The line “we are not on autopilot” alone suggests that policymakers are actively considering a delay.
How Strong Is the Disinflation Really?
At first glance, the trend looks promising. Headline inflation is moving downward, monthly price growth is not accelerating, and momentum has improved. But the central bank cannot — and should not — anchor policy solely on the headline figure.
Core inflation remains stubborn.
Services inflation is still elevated. Rent dynamics have not normalized. Minimum wage increases are still flowing through the system. And the volatility in energy and food markets continues to pose a risk.
In short: the disinflation is real, but not yet secure. The CBRT knows that credibility is fragile, and rushing into an early cut could easily undermine the progress achieved so far.
Why a Delay Is More Likely Now
Several factors give the CBRT justification to slow down:
1. Underlying inflation isn’t cooling fast enough
Services inflation, one of Türkiye’s most persistent problems, has not eased meaningfully. This alone warrants caution.
2. FX risk dominates the CBRT’s thinking
A premature rate cut could trigger a lira selloff. Any depreciation would immediately feed back into inflation through imports, energy, and food. For a central bank trying to restore credibility, this risk is enormous.
3. The global environment has turned hostile
If global rates stay high or emerging-market risk rises, cutting now becomes dangerous. A sudden move would expose Türkiye to capital outflows and renewed volatility — a scenario the economy cannot afford, especially after the turbulence earlier this year.
4. The CBRT’s language is intentional
Terms like “not on autopilot” and “data-dependent” are rarely accidental. They signal hesitation. They prepare markets for a possible pause. They indicate that the central bank sees more downside risk than the public data implies.
Put together, these arguments make a delay not only plausible — but increasingly likely.
What a Hold Would Mean
For the lira:
Likely positive. A hold reduces short-term volatility and strengthens investor confidence.
For foreign investors:
Reassurance. A cautious CBRT signals long-term discipline rather than political pressure.
For borrowers:
Disappointment. Corporate financing costs remain high, and households won’t get immediate relief.
For inflation expectations:
Supportive. Holding now helps lock in credibility and keeps expectations anchored.
On the consumption side, Turkey’s retail sales — still growing at around 2–3% despite inflation — suggest that the economy may be resilient enough to absorb a temporary hold. But this balance is delicate: any renewed inflation pressure or tightening in financial conditions could leave much less room for caution.
Conclusion
There is ample justification for the CBRT to delay the next rate cut. Moving too quickly risks undoing years of progress, destabilizing the currency, and weakening credibility just as it is being rebuilt. For now, the bank appears ready to prioritize long-term stability over short-term popularity.
In today’s economic climate, that may be the wisest move.
