Cautious rate cuts expected from Turkish Central Bank

ISTANBUL

Türkiye’s Central Bank has signaled that interest rate cuts will continue in 2026, but at a slower and more measured pace.

In its first inflation report of the year, Governor Fatih Karahan last week struck a dovish tone despite widening the inflation forecast range, reinforcing expectations that monetary easing will proceed cautiously.

The Bank entered the year with a restrained move, lowering the policy rate by 100 basis points to 37 percent at the Monetary Policy Committee (MPC) meeting on Jan. 22. Analysts interpreted this as a cautious stance compared to market expectations. Karahan’s latest remarks suggest that the upcoming March 12 MPC meeting will deliver a cut of no more than 100 basis points.

“The threshold for increasing the step size in the short term appears somewhat high,” Karahan said, a statement widely read as a signal against larger reductions.

While the Bank maintained its 2026 inflation target at 16 percent, it widened the forecast band from 13–19 percent to 15–21 percent, acknowledging heightened risks.

Karahan emphasized, however, that inflation is expected to improve from March onward, a message that kept market expectations for continued easing alive.

Chief economists at leading Turkish banks noted that the tone of the report was more dovish than anticipated. One senior economist explained that Karahan’s comments amounted to: “Do not expect more than 100 basis points from us; at most we can deliver that.” He stressed that February and March inflation figures would be decisive, with poor data potentially halting cuts altogether.

Another economist added that while revisions to the forecast range would normally call for a more hawkish stance, Karahan’s tone remained dovish, suggesting limited but ongoing reductions.

Gedik Investment’s Chief Economist Serkan Gönençler also highlighted that Karahan’s remarks pointed to a maximum reduction of 100 basis points. He noted that the Bank was preparing markets for a high February inflation print but expected improvement thereafter, keeping expectations for a March cut intact.

International observers echoed this cautious outlook. Goldman Sachs analysts suggested that the Central Bank may scale back the pace of easing, with total cuts this year likely falling short of the previously projected 900 basis points.