Economists see Turkey’s central bank raising interest rates steeply at its meeting on Thursday, while offering starkly different expectations on the size of the move.
(Bloomberg) — Economists see Turkey’s central bank raising interest rates steeply at its meeting on Thursday, while offering starkly different expectations on the size of the move.
Investors and strategists have raised bets of a gradual return to economic orthodoxy as President Recep Tayyip Erdogan revamps his cabinet after securing another five-year term in May. The Turkish leader has also signaled some flexibility in monetary policy, seen as opening the way for a shift from unconventional measures that stoked an inflation crisis.
Goldman Sachs Group Inc. economists led by Waleed Mohsin see the central bank lifting its key rate to 40% from the current 8.5% at the June 22 meeting — in what would be the first increase since March 2021. Bank of America Corp. sees Turkey’s benchmark rising to 25%, although notes the chance of a downside surprise, according to a report by the firm’s economists including Zumrut Imamoglu.
Global Banks Try to Put a Number on Turkish Rate Hike This Month
Deutsche Bank AG expects the rate to be initially raised to 20% in June, on par with the median estimate in a Bloomberg survey of 20 economists. For Bank of America and Deutsche Bank, guidance by Turkish authorities for further, less aggressive hikes in the next meetings is possible.
Not everyone is on board with expecting such a sharp increase already this week.
A few outliers including Societe Generale SA and Bloomberg Economics anticipate a move to 15%, while Standard Chartered Plc sees the key rate going up to only 14%.
TURKEY PREVIEW: Policy Pivot Likely to Start With 650-Bp Hike
Other decisions aside from rate increases will be equally important, according to Deutsche Bank’s Christian Wietoska. He cites new central bank Governor Hafize Gaye Erkan’s communication on authorities’ commitment to monetary tightening, and management of macro-prudential measures.
Bank of America’s Imamoglu expects regulations to be “unwound” gradually, making the prospect of a large one-off hike that enables lifting the controls “less likely.”
Turkey’s lira has depreciated 16% since the elections on May 28.
The Turkish central bank’s monthly survey last week showed market participants doubling their forecast for the one-week repo rate to 17% from 8.5% on June 22.
(Updates with StanChart, SocGen estimates in sixth paragraph)
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