Key Moments
- ING’s Frantisek Taborsky expects the Central Bank of Turkey to cut its policy rate by 100bp to 36.00% and to deliver additional 100bp cuts in October and December.
- The policy rate is projected to reach 35% by year-end, compared with a year-end inflation forecast of 29.0%.
- Despite crowded long TRY positioning, the carry trade is expected to remain in demand, with a USD/TRY forecast of 51.50 by year-end.
Rate Cuts Projected to Restart
ING strategist Frantisek Taborsky expects the Central Bank of Turkey to restart its monetary easing cycle, projecting an immediate 100bp reduction in the policy rate to 36.00%. He links this anticipated move to a shift in inflation dynamics following September’s data and to signals coming from domestic investment funds regarding the outlook for the economy in the final quarter of the year.
According to Taborsky, these developments together create room for the central bank to resume cutting rates, even as broader macroeconomic risks remain present.
Inflation Outlook and Policy Path
Taborsky highlights that inflation sentiment has turned more constructive after September figures, supported by expectations of softer demand. Based on this backdrop, he anticipates two additional 100bp cuts in the policy rate in October and December.
Under this scenario, the policy rate would end the year at 35%, set against ING’s year-end inflation forecast of 29.0%. This configuration implies that, in his view, real rates would stay positive despite further monetary easing.
| Indicator | Projection |
|---|---|
| Current expected policy cut | 100bp to 36.00% |
| Additional expected cuts | 100bp in October and 100bp in December |
| Projected policy rate at year-end | 35% |
| Year-end inflation forecast | 29.0% |
| Year-end USD/TRY forecast | 51.50 |
Domestic Demand and Financial Stability Considerations
Taborsky cautions that the evolving situation in investment funds could pose downside risks to economic activity in the final quarter. He notes that tighter liquidity conditions, wealth effects, and lower confidence have the potential to drag on domestic demand.
He adds that repayments to smaller investors might soften the impact on consumption, but he flags counterparty exposures in the financial system as the key channel through which stresses could spill over more broadly.
TRY Positioning and Carry Trade Dynamics
Despite warning that long Turkish lira positions are heavily crowded and generating progressively less carry, Taborsky assesses that the strategy continues to appeal within the broader emerging markets universe.
He expects demand for TRY carry trades to remain in place over the coming months, even in the face of renewed rate cuts. In his view, the recent weekly adjustment in USD/TRY does not meaningfully change the foreign exchange landscape, and he maintains a forecast of 51.50 for USD/TRY by the end of the year.
Taborsky concludes that, overall, the carry trade in the lira is still intact, with policy easing and market positioning shaping the near-term risk-reward profile for investors.
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