(Bloomberg) — Turkey’s central bank is expected to announce its first interest rate cut in nearly two years on Thursday, with major banks divided over the size of the cut.

Policymakers led by Governor Fatih Karahan will lower the benchmark one-week repo rate from 50% to 48.25%, according to the median estimate in a Bloomberg survey of analysts.

Forecasts vary in the absence of clear guidance from the central bank. JPMorgan Chase & Co. and Deutsche Bank AG expect a 150 basis point cut while Citigroup Inc. and Bank of America Corp. are considering a reduction of 250 basis points. Some officials have urged caution over what investors might perceive as aggressive moves, as the bank prepares to reverse its most aggressive tightening cycle in years.

What Bloomberg Economics says…

“Looking ahead, we expect the central bank to cut rates at almost all of its monthly meetings next year, reducing the policy rate to 25% by the end of 2025. Easing financial conditions will also be accompanied by a relaxation of macroprudential rules – we believe that the central bank will particularly focus on this in the second half of the year.”

— Selva Bahar Baziki, economist. Click here to learn more.

However, some investors expect the bank to take a more cautious approach. That was reflected in a report by economists at Goldman Sachs Group Inc., who said the monetary authority would likely hold rates on hold for a ninth month with high levels of inflation and loan growth, making a rate cut “premature” at this stage.

Governor Karahan reinforced market expectations for lower borrowing costs during this year’s final inflation report, saying demand and services inflation was slowing. This was also reflected in the latest policy statement from the Monetary Policy Committee.

This change was followed by a slight deterioration in the markets’ outlook for prices, a key parameter for policymakers when deciding the path of rates. Inflation expectations of households and businesses also remain high. The bank sought to allay concerns, saying lower borrowing costs would not necessarily lead to looser policy.

Deputy Governor Cevdet Akcay told investors that the bank’s stance would remain tight and that any easing cycle need not be uninterrupted, Bloomberg reported last month.

Analysts say the expected rate cut could be accompanied by additional measures, including narrowing the so-called rate corridor. Such a move would be “a hawkish signal” to investors, Deutsche Bank analysts Yigit Onay and Christian Wietoska wrote in a report.

The bank’s overnight borrowing and lending rates – which mark the lower and upper end of the rate range – are currently 600 basis points apart. A narrower range is generally welcomed by markets because it allows for greater predictability about the future of rates.

The central bank has also sought greater fiscal support to slow prices. The government’s decision to increase the minimum wage by 30% in 2025 was therefore welcomed by the markets.

Economists say moderate growth in purchasing power will keep demand in check and allow the central bank to cut rates at a steady pace.

More than a third of the working population earns the minimum wage and this year’s 49% increase has caused inflation to rise, making it difficult for the monetary authority to contain price pressures.

The central bank raised its inflation estimates last month, forecasting annual price growth to 44% at the end of this year and 21% at the end of 2025. Consumer price growth slowed to 47% .1% last month, almost ten times the official target. of 5%. December inflation data will be announced on January 3.

The authorities prefer to focus on seasonally adjusted monthly inflation, which accelerated in November.

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