Turkey’s central bank is expected to cut its policy rate again this week, according to surveys, continuing an easing cycle amid rising inflation.
The Central Bank of the Republic of Turkey (CBRT) has already cut its benchmark policy rate by 300 basis points since September to 16%, arguing that inflationary pressure is temporary.
It is expected to slash the rate by 100 basis points to 15% when its Monetary Policy Committee (MPC) gathers this Thursday, according to surveys.
The median estimate of 14 economists in a Reuters poll last week was for a 100-basis-point cut, with forecasts ranging between no change to the one-week policy rate and a 150-basis-point cut.
At least four regular participants in Reuters polls did not make a forecast, citing unusual difficulties guessing the central bank’s moves.
Participants in the CBRT monthly survey, unveiled on Friday, also expect another reduction this month, followed by a pause. The survey of 48 people, mostly finance and corporate sector representatives, foresee a 100-basis-point cut. This also matches the median estimate in a Bloomberg poll.
Yet, participants in the central bank study see the rate unchanged at 15% three months later.
In a shift in guidance, the CBRT Governor Şahap Kavcıoğlu said last month the current account deficit was the country’s main problem, and narrowing the shortfall was key to price stability and supporting the Turkish lira, forecasting that the balance of payments will improve in the rest of 2021.
Turkey’s current account recorded a surplus of $1.65 billion in September, its second straight month in the black, with a boost in exports and some recovery in tourism revenues.
The CBRT has said there is limited room for further cuts this year, after unexpectedly reducing its policy rate by 200 basis points last month.
Turkey’s annual inflation rate rose to 19.89% year-on-year in October, according to official data, driven by food, services, housing and transportation prices, reflecting in part soaring world energy prices.
The CBRT last month raised its year-end inflation forecast to 18.4% from 14.1%, in an upgrade driven by higher import costs and food prices.
The year-end inflation expectations of the participants in its survey climbed to 19.31% from 17.63% in October’s poll. The lira was seen weakening to 9.98 per dollar by the end of the year.
The currency touched an all-time low of 10 against the dollar on Friday, breaching the key psychological threshold, in a slide also triggered by higher-than-expected United States inflation data last Wednesday.
This boosted the dollar due to possible earlier Federal Reserve (Fed) policy tightening. Rising U.S. rates tend to pull funds from emerging economies.
Deutsche Bank said Thursday the central bank’s emphasis on core inflation and the current account suggests it will cut rates by 100 basis points in both November and December.
"We expect headline inflation to end the year at 19.5% ... and it will stay above 20%" in the first half of next year, Deutsche Bank said.
The median estimate of 12 economists in the Reuters poll for the policy rate at year-end was 15%, with forecasts ranging between 13% and 16%.