Under pressure from Erdogan, who describes himself as the “enemy” of interest rates, the central bank cut the interest rate to 8.5 percent from 19 percent in 2021 to boost growth and investment.
However, this sparked a record crisis for the lira in December 2021, and pushed inflation to the highest level in 24 years, exceeding 85 percent last year.
Consequently, the authorities intervened directly in the foreign exchange markets, as they resorted to tens of billions of dollars in reserves to maintain the stability of the lira for most of this year.
The central bank’s net foreign currency reserves touched a record low of $4.4 billion last month, after demand for foreign currency surged during the elections.
But the return of Şimşek, who was finance minister and deputy prime minister from 2009 to 2018, heralds a move away from unorthodox interest rate cuts, which have been implemented despite soaring inflation and caused the lira to lose more than 80 percent of its value in five years. Years.
Looking to the future, a number of banks and analysts expected the future interest path after these changes in the Turkish government, whether at the next meeting or later.
Societe General
The bank’s expectations indicate the lowest expected rate of rate hike during the next meeting that will be held this month. Bank analysts expect the Turkish Central Bank to raise interest rates by 650 basis points.
With regard to the central bank’s path after the next meeting, the bank’s analyst, Marek Dreamal, expected, “to raise interest rates twice in a row by five percentage points… to bring basic interest rates to 25 percent in August.”
JP Morgan
The bank’s analysts believe that the next meeting will carry a resounding surprise, for the central bank to raise the interest rate by 1,650 basis points at once, which, if it actually happened, would be the largest increase by the Turkish central bank since 2010.
Commenting on the reason for this expected strong hike, the bank’s Turkish economic analyst, Fatih Alekcik, said, “The purpose of the first interest rate hike may be to bridge the gap between the central bank’s basic interest rate and the average interest rate on deposits.”
It is noteworthy that the weighted average interest rate for deposits up to 3 months rose significantly to about 34 percent, the highest level in 20 years, according to Bloomberg data.
In the future, the bank’s analysts adhered to their opinion, which they published before the elections, in which they see interest rates as reaching 30 percent before the end of the year.
Barclays
Barclays analysts agree with JP Morgan analysts regarding the next decision, that the hike will be by 1650 basis points, but with regard to the future, the analyst at Barclays, Rakan Arguzel, believes that the central bank may raise the basic interest rate in to 35 percent in October.
Bloomberg Economics
Analyst Silva Bahar Bazeki believes that Simsek’s appointment does not change their expectations to raise Turkey’s base interest rate, the one-week repo rate, to 17 percent by the end of the year.
She added that this expectation remains unchanged, because Şimşek is the monetary policy maker that the market has wished for.
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