Int’l financial institutions forecast Turkey’s new interest rate as 20 to 40 pct

Duvar English

With the change in the economic management after the elections, Turkey’s Central Bank (TCMB) will announce its first interest rate decision on June 22. International financial institutions predict that the policy rate could range between 20-40 percent after the appointment of Cevdet Yılmaz as Vice President, Mehmet Şimşek as Treasury Minister, and Hafize Gaye Erkan as Governor of the TCMB.

Bank of America (BofA) 

Bank of America (BofA) announced that it expects the TCMB to raise the policy rate to 25 percent. In the report released on June 18, the economists reminded that the new economic team has given little guidance on their policies; hence, a lower increase would not be a surprise. 

The report also indicated that they forecast a gradual normalization of banking regulations rather than a rapid one. The experts also reminded that since the appointments of Şimşek and Erkan, reserve losses have halted and credit growth has slowed, but the Turkish Lira has depreciated significantly. 

The BofA predicted that if the TCMB starts with a low interest rate of 15-18 percent, it should make at least two more rate hikes to catch up with current bank rates.

Deutsche Bank

Germany's Deutsche Bank stated in a note dated June 16 that an increase of 1150 basis points to 20 percent in the central bank's policy rate is expected from the TCMB. Furthermore, the note suggests that another 5 percentage point hike may take place in July, contingent upon the market's response.

"We expect the TCMB to change its stance in June 2022 and start a hiking cycle again," Christian Wietoska and Twisha Roy wrote in the note. 

Goldman Sachs

United States based investment bank Goldman Sachs announced in its note dated June 16 that it expects the policy rate to be raised to 40 percent. In the report written by Waleed Mohsin, Mikhail Butkov, and Ashwath P.T., inflation forecasts were kept at 40 percent for the end of 2023 and 20 percent for the end of 2024.

Growth expectations were lowered from 2.9 percent to 2.3 percent for 2023, citing the expected tight monetary policy. This indicated a negative growth expectation for the second half of 2023 and into 2024.

President Recep Tayyip Erdoğan on June 14 signaled that he would not prevent Mehmet Şimşek’s expected interest rate hike decision even though he still believes that lower interest rates result in lower inflation. The TCMB on May 25 announced the annual inflation as 43.68 percent. The Monetary Policy Committee has also decided to keep the policy rate constant at 8.5 percent.