Wall Street banks are again having to rewrite their outlooks for Turkish interest rates, as inflation climbs faster than expected.
(Bloomberg) — Wall Street banks are again having to rewrite their outlooks for Turkish interest rates, as inflation climbs faster than expected.
Barely a week after being blindsided by a surprisingly steep rate hike to 25%, JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp. are saying official borrowing costs may need to rise quicker — or higher — after price growth surged to almost 60% last month.
The three global lenders now see inflation peaking at over 70% next year.
“The new Monetary Policy Committee might prefer to continue surprising to the upside to prevent further deterioration in inflation expectations,” Morgan Stanley economists Hande Kucuk and Alina Slyusarchuk said in a note. “We might see the central bank bringing its policy rate to 30% sooner than we envisage.”
Under Governor Hafize Gaye Erkan, who President Recep Tayyip Erdogan appointed shortly after his re-election victory in May, the central bank had espoused a “gradual” approach to tightening policy.
But that may change. Data on Monday showed the pace of annual inflation accelerated to 58.9% last month, faster than every forecast in a Bloomberg survey of economists.
Turkish Inflation Nears 60%, Piling Pressure on Central Bank
JPMorgan revised up its inflation estimate for the end of 2024 by 5 percentage points and now predicts the benchmark rate will reach 45%.
The central bank “is more sensitive to the inflation outlook with new MPC members,” said Fatih Akcelik, the US bank’s Turkey economist. He was referring to the appointment of three deputy governors, including a former adviser to the Federal Reserve Bank of New York, last month.
BofA said the key rate will reach 30% this year and 45% in the second quarter of next year.
There will probably be “more quantitative measures” by monetary authorities “to tighten financial conditions selectively until March,” according to Zumrut Imamoglu, a BofA analyst in London.
“Given that inflation expectations are much higher now than back in June, more is needed,” she said. “The main question is, can it be delivered ahead of local elections in March.”
–With assistance from Kerim Karakaya.
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