Türkiye’s central bank is expected to tighten its policy again this week, but at a slower pace compared to previous months, as it approaches the end of its cycle, according to market surveys.
Since June, when President Recep Tayyip Erdoğan appointed former Wall Street banker Hafize Gaye Erkan as its governor, the Central Bank of the Republic of Türkiye (CBRT) has lifted its key rate by 3,150 basis points – including hikes of 500 basis points in each of the last three months.
The key interest rate is seen rising by 250 basis points on Thursday to 42.5%, according to the median response of 12 institutions in a Reuters poll.
Last month analysts also predicted a downshift in the tightening. But the central bank surprised by again hiking by 500 basis points to 40% to tackle double-digit inflation.
Analysts at Morgan Stanley on Friday also predicted a slower pace in the tightening, foreseeing a 250 basis-point hike in the one-week repo rate.
The bank said last month that the current policy level is significantly close to what is required to establish the disinflation course, adding the pace of monetary tightening will slow down and the cycle will be completed soon.
The central bank expects inflation to rise from near 62% last month to 70-75% in May, before dipping to about 36% by the end of next year.
The Reuters poll showed economists expect rates to increase a bit more in the first half of the next year, before dipping in the second half after annual inflation begins its expected fall.
The median forecast puts the policy rate at 45% by mid-2024, and then down to 37.5% by end-2024, based on 10 poll respondents.
Analysts at Morgan Stanley see the bank delivering a final 250-basis-points hike in January to complete the cycle at 45%.
Inflation hit a 24-year peak of 85% last year and surged again in recent months as the Turkish lira weakened after a long easing cycle that has been reversed by the new economy administration appointed after the May elections.
