ANKARA: Turkey’s Central Bank is expected to cut its main interest rate by an additional 25 base points at its next monetary policy meeting on Thursday, according to analysts. All but one of the 15 economists who attended the Anadolu Agency Finance poll expect the upper band rate to be lowered to 8.25 from 8.50, while one economist expects a cut by 50 base points. No change is expected in other short term rates, according to the poll results announced Tuesday.
The Central Bank had cut the interest rate from 8.75 percent to 8.50 percent at its last policy meeting on Aug. 20. Haluk Burumcekci, economist and financial analyst at Anadolu Agency said Wednesday the Turkish Central Bank was in theory giving the message of tight policy in terms of monetary base and liquidity.
“However, in practice, it is easing the conditions of the two, as well as the macroprudential measures. “I believe that, in the short term, the bank will continue to voice tight policies considering the risks associated with inflation,” he said. Inanc Sozer, Managing Director at Turkey Macro View (TMV) Consulting, said that the US Federal Reserve’s interest rate decision would have a critical influence on the Turkish Central Bank’s upcoming decision. The Fed’s decision on whether to raise interest rates is due Wednesday at 6 p.m. GMT. “I think the Central Bank will cut overnight lending interest rates by 25 base points in accordance with market expectations unless Fed makes a surprise move,” Sozer said.
“Although the inflation issue, which has risen a bit because of tax arrangements, is spoken widely, I think the major concern should be the slowdown in economic growth. In this sense, the Central Bank should be supported strongly not only with interest rate tools but also with other policies,” he said. “The government has taken important fiscal measures to support the economy. However, the Central Bank and the banking watchdog should fulfill their responsibilities in order to back up the private banks in expanding their liquidity capacities to assist the market,” he added.
Turkish officials, including President Recep Tayyip Erdogan, have also urged the Central Bank to boost growth with lower borrowing costs. Orkun Godek, Vice President at Private Banking Capital Markets Products Sales at DenizBank, said that the efforts to decrease the cost of money use would continue as per the second quarter economic growth figures — which were below expectations — and the inflation statistics in August, which surprisingly showed a downward trend. “Simplification of the monetary policy conducted by the bank might be hooked at the level of 7.75 percent, upper border of interest rate corridor, due to domestic and international risks with the announcement of inflation report in October,” said Godek.
“Although it seems a bit unsafe in terms of risk perception that the central bank’s meeting follows the Bank of Japan and Fed decisions, the domestic market’s reaction to the 225 base-point decrease in the recent period has been very positive,” he said. Ozlem Bayraktar Goksen, Chief Economist at Tacirler Investment, said that the expectations that the core inflation rate will continue to decline in the medium term would help the Central Bank with its decisions.
On the global side, Goksen said she expected Fed to increase rates in December. “A global influence in the short term is not expected because the effects of the negative interest rates still exist and limit the influence of Fed’s announcements,” she said. “We expect the funding costs to drop to 7.5 percent in the coming months with the help of the Central Bank’s simplification of the monetary policy measures,” she added.
