Goldman Sachs warns against CBRT rate cut

In an assessment prepared by Clemens Grafe and Başak Edizgil, the bank said it was too early to begin another monetary easing cycle, despite market expectations for an October rate cut. Goldman Sachs noted that the CBRT’s decision to resume one-week repo funding on August 23 had effectively lowered the overnight reference rate by 300 basis points. Accelerating reserve losses and persistently high inflation expectations following the move were identified as key risks associated with premature monetary easing.

Goldman Sachs economists emphasized the importance of maintaining a cautious monetary policy stance, noting that underlying inflation had only recently returned to levels seen before the energy price shock. Household inflation expectations have started rising again, while market participants’ expectations remain above pre-Iran war levels. The bank also said bond market pricing suggests that any rate-cutting cycle could be short-lived, while foreign investors have not significantly increased their bond holdings despite expectations of monetary easing. Highlighting potential depreciation pressure on the Turkish lira, Goldman Sachs warned that an October rate cut could increase financial stability risks, although it acknowledged growing uncertainty surrounding its forecast for unchanged interest rates.