Publications

The CBRT kept the policy rate (one-week repo, 46%) and the width of the interest rate corridor (44.5%-49%) the same, surprising the market expectation of a cut in the upper bound of the corridor.

The sensitivity remains on growth and employment outlook, potentially generating a policy mix where monetary stance staying relatively tighter compared to our early March baseline scenario and fiscal policy not being able to be tightened as targeted in the Medium Term Program (MTP).

The Turkish economy grew by 1.0% q/q in 1Q25, leading to an annual growth rate of 2.0%. Our monthly GDP indicator nowcasts a deceleration to a quarterly growth nearing 0% in 2Q25, which would start improving in 3Q25 with more supportive conditions.

Hard data confirms a robust quarterly GDP growth in 1Q25, similar to the previous quarter (1.7% q/q in 4Q24), driven primarily by domestic demand. Leading indicators signal a broad-based weakening in activity for 2Q25. We maintain our 2025 GDP growth forecast of 3.5% with risks becoming tilted to downside.

Consumer prices rose by 3.0% m/m, in line with our expectations but slightly lower than the consensus (3.2%), resulting in an annual inflation of 37.9%. We maintain our 2025 year-end inflation forecast of 31%, which we had lowered from the previous 32% amid the recent decline in oil prices.

We develop big data-based, high-frequency sectoral indicators using bank transaction data to nowcast real-time sectoral GDP growth, enhancing accuracy through modeling techniques and strong alignment with official statistics.

High frequency data for 1Q25 point that the q/q growth will likely remain steady as in 4Q24, supported by the domestic demand. Despite the uncertainty on trade wars and recent tightening in financial conditions, we evaluate risks as balanced on our 2025 GDP growth forecast of 3.5%, given the strong buffer of 1Q25 growth.

On the back of both internal & external shocks, the CBRT hiked the ON lending rate to 46% and squeezed TL liquidity in March. With the tightening steps, credit growth decelerated and the increased funding costs are expected to weigh on the 2025 profitability of the sector.