Morgan Stanley expects the Central Bank of the Republic of Türkiye (CBRT) to begin cutting interest rates in the fourth quarter of 2026, while maintaining its year-end policy rate forecast at 35 percent.

In a note released ahead of the CBRT's Monetary Policy Committee meeting, the investment bank said recent geopolitical tensions in the Middle East and higher energy prices have increased risks to Türkiye's disinflation process, reducing the likelihood of an earlier start to monetary easing.

lnflation is expected to continue slowing in the coming months, although the pace of improvement may remain below the central bank's projections.lt also listed Türkiye among the economies in the Central and Eastern Europe, Middle East and Africa (CEEMEA) region that are more exposed to geopolitical risks and energy price volatility. It warned that persistently higher oil prices could raise import costs, add to inflationary pressures and make it more difficult to restore price stability.

The report said renewed pressure on the Turkish lira, stronger-than-expected domestic demand and weaker global investor sentiment could delay the start of rate cuts and require the CBRT to maintain its tight monetary stance for longer. It added that further policy tightening could not be ruled out if inflation risks intensify.

On the other hand, Morgan Stanley said a faster decline in monthly inflation, greater stability in the exchange rate and a sharper slowdown in domestic demand could support an earlier start to the easing cycle than currently expected. (ILKHA)