Türkiye’s central bank is forecast to deliver another sharp interest rate hike this week, according to surveys and economists, as it continues to tighten policy in a bid to conquer soaring inflation.
After years of pursuing loose policy, the central bank reversed course after May's elections and began lifting rates to bring down inflation, which touched 61.5% in the 12 months to September.
The median estimate of 20 economists in a Reuters poll for the policy rate was 35%, up from the current 30%. Four economists forecast a hike of 250 basis points and one expected a lift of 300 basis points.
"The central bank's focus has remained on anchoring inflation expectations and achieving disinflation... A hike to 35% would lead to a positive ex-ante real policy rate based on the 33% inflation forecast for 2024 in the medium-term plan," ING wrote in a research note.
Morgan Stanley economists also foresee a 500-basis-points rate hike due to upward risks in inflation and said on Monday they see price increases probably easing in October.
“However, we see that headline inflation will rise to 67.1% by the end of the year and peak at 73.4% in May 2024,” they said in a note.
Since June, the central bank has turned its focus to disinflation and lifted its policy rate by 2,150 basis points while other macroprudential measures such as credit tightening to cut domestic demand were also put in place.
The bank is likely to repeat its intention to implement additional tightening measures in interest rates and macroprudential tools to guide inflation expectations and support de-dollarization efforts, Morgan Stanley analysts said.
Although recent data indicate some moderation in domestic demand, the impacts of the interest rate hikes implemented since the August Monetary Policy Committee (MPC) meeting are yet to be fully seen, they noted.
The median forecast in the Reuters poll for the year-end policy rate was 35%. The central bank is expected to hike rates further to 40% in the first half of next year, the poll also showed.
Further depreciation in the Turkish lira and increases in taxes and fees have fanned inflation despite tighter monetary policy.
Inflation is seen remaining elevated through the rest of this year, ending 2023 at 69.3%, the median of the poll of 10 institutions showed. Estimates in the Reuters poll ranged between 64.6% and 73.0%.
Inflation is forecast to stand at 43.4% at the end of 2024 and 25.3% at end-2025, according to the poll.
It touched a 24-year high of 85.5% last year after interest rate cuts sent the lira down 44% in 2021 and another 30% in 2022. The lira has depreciated more than 30% of its value so far this year.
In the Reuters poll, Türkiye’s economy is expected to grow 4% this year, according to the median of 33 economists, with the help of domestic demand in the first half despite devastating earthquakes in February, monetary tightening and a global slowdown.
The government had forecast growth of 4.4% this year.
The median growth forecast stood at 2.9% for 2024 and 3.8% for 2025 in the poll, compared to the government's forecast of 4.0% and 4.5% respectively.
Türkiye’s current account deficit in 2023 is expected to be 4.6% of gross domestic product (GDP), the median forecast showed, compared to a government forecast of 4%.
The deficit was seen at 3.1% in 2024 and 2.5% in 2025, compared to government predictions published in September of 3.1% and 2.6%, respectively.
Morgan Stanley analysts see the balance registering a surplus in September and October and end the year with a deficit of $44 billion.
