Turkey’s central bank is expected to restart its easing cycle from the current 46 per cent by the end of the second quarter, with interest rate cuts likely to continue through at least the third quarter of 2026, a Reuters poll of economists showed.

The bank hiked its key interest rate by 350 basis points to 46 per cent at its meeting on April 17 in a surprise move that reversed an easing cycle and boosted Turkish assets following market turmoil triggered by the arrest of Istanbul’s mayor last month.

Last week’s policy pivot – just four months after rate cuts had begun – aimed to ease weeks of pressure on the lira that forced the central bank to tap its foreign currency reserves to push back on rising inflation expectations, analysts have said.

Turkey’s overnight interest rate rose to the new upper band of the rate corridor, around 49 per cent, a day after the surprise policy tightening.

In December, when the rate was 50 per cent, the bank began easing marking the apparent end of an aggressive tightening effort since mid-2023 to bring down years of soaring prices and a series of currency crashes.

Policymakers will bring the rate down 200 basis points this quarter to 44 per cent and cut 1,100 basis points this year to put the rate at 35 per cent. Next year will see further reductions and it will be 25.75 per cent by end-Q3 2026, the poll showed.

Previous expectations were for 37.50 per cent in Q2 and 29.75 per cent at year-end.

“With inflation still likely to remain on a downward trajectory over the coming months, we don’t think further monetary tightening lies in store,” said Nicholas Farr, emerging Europe economist at Capital Economics.

Morgan Stanley said in a note last week they see the hawkish surprise as a positive move to anchor FX and inflation expectations barring new domestic and global shocks.

Annual inflation slowed to 38.1 per cent in March and the central bank expects it to fall to 24 per cent by year-end.

Economists predicted inflation to be 29.5 per cent by the end of this year and 20.3 per cent by end-2026.

Turkey’s annual inflation is forecast to be 35.2 per cent this quarter before falling in the second half of this year and through 2025, poll showed.

The economy was forecast to grow 2.9 per cent this year and 3.5 per cent next year, the April 17-23 poll of 38 economists predicted. That compares with 2.7 per cent and 3.5 per cent respectively in a January poll.

Turkey’s current account deficit is expected to be 1.4 per cent and 1.5 per cent of GDP in 2025 and 2026 respectively.