New Predictions from BofA for 2025: What Will the Central Bank Do? What's Next for the Dollar/TL?

Bank of America Securities forecasts that the Central Bank of the Republic of Turkey (CBRT) will significantly reduce its policy interest rate in 2025. The institution stated that the rate cuts, which began in December, should continue in January.

Continuation of Interest Rate Cuts Expected In its latest report, Bank of America Securities provided notable predictions regarding the CBRT's interest rate decisions. It was suggested that the rate cuts proposed for January would continue throughout 2025. The institution predicts a total of seven rate cuts by the end of the year, bringing the policy rate down to 30%.

This cycle of reductions is expected to occur in 250 basis point increments due to the newly established meeting schedule. Considering that there will be no meeting in February, BofA forecasts a 250 basis point cut in January.

Inflation Expectations and Risks The report from Bank of America mentions that the CBRT may utilize macroprudential tools if inflation rises. BofA states that the current inflation forecast is 25%, with an expectation that 9-10% of this will occur in the first quarter. However, despite this expectation, it is believed that the area for interest rate cuts will widen as annual inflation declines.

The limited increase in the minimum wage has been noted to reduce the risks regarding inflation, while it is stated that should inflation data exceed expectations, the CBRT may slow down or pause its rate cuts.

Future of the Turkish Lira BofA, which expects the Turkish lira (TL) to gain value in real terms, emphasizes that this gain may be limited with the drop in inflation. The institution forecasts that if inflation is brought under control, savings in TL will become attractive and that the TL will maintain its appeal as long as real interest rates remain positive.

Regarding exchange rate expectations, Bank of America revised its end-of-year dollar/TL forecast from 44 to 41. This change is said to be directly related to market dynamics and inflation developments.