07:58 AM EDT, 07/18/2025 (MT Newswires) -- Turkey's central bank (CBT) held rates steady in June, despite notable improvements in inflation the previous month, said UBS.

However, its guidance turned more dovish, removing any indication of further monetary tightening from its policy statement.

Inflation in June came in slightly below expectations at 35% year over year, while the current account deficit in May narrowed to just $700 million, supported by favorable seasonality and higher goods exports. Additionally, foreign exchange reserves recovered in May, with inflows of about $10 billion, although they remain significantly below pre-March levels when political turmoil disrupted markets, noted the bank.

Given these positive developments, UBS anticipates the CBT will cautiously resume rate cuts next Thursday, likely reducing the policy rate by 200-300 basis points. Nevertheless, ongoing political tensions in Turkey are a "significant" concern, limiting the attractiveness of carry trades in the lira (TRY).