Asia FX muted, dollar fragile as CPI data boosts Sept rate cut bets
Investing.com -- The Central Bank of the Republic of Türkiye (CBRT) is expected to keep interest rates on hold at its upcoming meeting but may resume cutting rates as early as July, according to a new report from UBS.
Türkiye’s economy has shown signs of cooling under tight monetary policy, with growth slowing to 2% year-over-year in the first quarter of 2025, down from 3% in the fourth quarter of 2024. The slowdown comes as the central bank maintains its restrictive stance following market volatility in March.
Inflation in Türkiye continued its downward trend, falling to 35.4% year-over-year in May from 37.9% in April. UBS attributes this decline to favorable base effects and lower food costs, creating conditions that could eventually support monetary easing.
The CBRT currently maintains a policy rate of 46%, while the effective overnight lending rate stands higher at 49%. UBS suggests the central bank may guide benchmark rates closer to the policy rate before implementing actual cuts.
The Turkish lira currently benefits from strong carry appeal, but UBS identifies several risks to the currency, including low foreign exchange reserves, continued dollarization among domestic savers, and potential policy fatigue as the tight monetary stance persists.
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