POLL-Turkey central bank seen to restart easing cycle with 100bp cut

By Zeynep Berkem

ANKARA, Oct 22 (Reuters) - Turkey's central bank is expected to restart its rate-cutting cycle this week, after pausing in the wake of the U.S.-Iran war, a Reuters poll showed on Monday.

Only two out of 24 economists in the poll, predicted no change to borrowing costs, while 22 economists forecast a rate cut when the bank announces its decision on Thursday.

Economists also expect another 100 bp rate cut from the central bank in its December meeting bringing the year end policy rate to 35%, the poll conducted between October 14-19 showed.

In September the central bank kept the policy rate unchanged at 37%. Economists expect the easing cycle to start on Thursday with a 100 bp cut.

Economists expect the easing cycle to continue into 2027, forecasting the policy rate at 33% by the end of the first quarter, 31% in the second quarter, 30% in the third quarter and 28% by year-end.

Since the Iran war started at the end of February, Turkey's central bank has kept policy rate at 37%. The central bank has taken other liquidity steps that pushed the lira overnight rate up to the 40% limit until August to limit the war impact on economy.

In a recent speech, the Central Bank Governor Fatih Karahan has said underlying inflation is moderating despite higher energy prices.

DISINFLATION REMAINS ON TRACK

While the war between the United States and Iran has pushed energy prices sharply higher, latest inflation data suggest the impact on Turkey's import-dependent economy may have been more limited than feared.

Inflation was 1.84% month-on-month in September, below expectations, while the annual figure was 29.73%.

JP Morgan said its base case remains that the central bank would opt for a 100 basis point cut at both the October and December meetings.

Better-than-expected inflation outcomes in August and September pave the way for the start of the rate cutting cycle, JP Morgan said. "Outcomes are likely to be interpreted by the CBRT as providing greater confidence that disinflation remains on track."

Citi expects a 100 basis point rate cut, supported by CBRT's assessment of the September inflation outturn and softer economic activity, Barclays also expects a full-point cut to 36%.

"Despite elevated energy prices, weak economic activity and a downside inflation surprise suggest that disinflation has regained momentum" Barclays said, adding that while it's not currently expecting the recent fund crisis to have a material impact on consumption, the CBRT could opt for a somewhat stronger easing cycle.

The central bank will announce its next interest rate decision at 1100 GMT on October 22.

GROWTH, CURRENT ACCOUNT

Reuters polls showed a modest downward revision to year-end inflation forecasts for this year. The latest survey shows it at 29.5% by year end, it is expected to slow to 23.7% at end-2027.

Economic growth is expected to be 2.7% this year before picking up to 3.7% in 2027, the poll showed.

In its three-year economy roadmap, the government expects the economy to grow 3.3% this year and 4.2% next.

Turkey's current account deficit is seen at 2.7% of GDP this year and 2.5% in 2027, according to the median forecasts in the Reuters poll.

(Other stories from the Reuters global economic poll)

(Polling by Shaloo Shrivastava; Writing by Zeynep Berkem; Editing by Hari Kishan)

((zeynep.berkem@thomsonreuters.com;))