ECB and Turkey's Central Bank Rate Outlook Diverge

Capital Economics forecast that the Turkish Central Bank will continue cutting rates, expecting the policy rate to fall from the current 37% to 36% by the end of 2026, then to 27% by the end of 2027 and 22% by the end of 2028. The firm also projects further cuts in Russia, Israel and Hungary, while noting a possible rate increase in the Czech Republic and steady rates in Poland.

Bank of America analysts expect the European Central Bank to keep tightening, with up to three additional rate hikes possible before any easing in 2027. The ECB’s main policy rate sits at 2.25%, and while a July hike was anticipated, lower oil prices could push any increase to the September meeting. Inflation remains the central concern driving the ECB’s stance.