Economists wait for rate cut after lira's recovery

The dollar decreasing against the Turkish lira after the five-month trend of increasing has aroused the expectation that the Central Bank of the Republic of Turkey (CBRT) might decrease interest rates. The dollar exchange rate hit the highest level on April 25, at 2.7433, but began decreasing within the last month to now hover around 2.56. This decrease along with the U.S. Federal Reserve's (Fed) latest meeting minutes pointing to an increase in interest rates has created a positive atmosphere in markets.

Economists said if the decrease of the dollar against the Turkish lira continues after the elections and the new elected government focuses on structural reforms, inflation rates might decrease. Moreover, the CBRT might become more flexible in terms of determining interest rates.

VakıfBank's Economic Research Manager Cem Eroğlu stressed that along with the inflation rate, the exchange rates and the interest rates might determine the decisions of the CBRT regarding interest. "The global trends plus Turkey's attempt for structural reforms leaves a great maneuvering area for potential growth. With these improvements, Turkey may experience a small possibility for a decrease in interest rates," Eroğlu added.