Economists divided on possible Turkish rate hike

Economists are divided on whether Turkey’s central bank will hike its main interest rate for the first time in almost three years next week, a Reuters poll showed on Friday, after falls in the lira currency to a series of record lows. Sources in Prime Minister Binali Yildirim’s office said the central bank had agreed it would “take the necessary steps” to ensure price stability at a meeting of top economy officials on Friday, but were otherwise tight-lipped on its policy stance.

Six of 13 institutions in the poll expect the bank to hike its main oneweek repo rate by 25 basis points to 7.75 percent next Thursday. That would be the first hike since the end of January 2014, when the bank met in emergency session and raised its main interest rate to 10 percent to stem sharp lira falls. The lira hit a new record low of 3.4 to the US dollar earlier on Friday. Other emerging market assets also suffered after Federal Reserve chief Janet Yellen signalled a US rate hike was on track.

The lira has been hit by global volatility in the wake of Donald Trump’s US election victory, and by concerns about domestic Turkish politics after July’s failed coup. “Our people should remain calm, the Turkish economy’s foundation is strong,” Yildirim told reporters in the capital Ankara, before the “economic coordination committee” meeting. The meeting attended by Yildirim, the central bank governor and other senior members of the cabinet including Deputy Prime Minister Mehmet Simsek and Finance Minister Naci Agbal, concluded that recent market activity had largely been driven by global developments, the sources said.

They said ministers agreed that government reforms to strengthen economic stability should be accelerated to limit the impact on the local economy, and that the central bank would continue to monitor developments closely. “(The bank) will take necessary measures in line with the target of price stability,” one of the sources in the prime minister’s office said.

Oyak Securities chief economist Mehmet Besimoglu said the probability of the central bank taking a step on interest rates next week appeared to have increased after the meeting. All 13 economists in the Reuters poll expect the bank to leave the upper and lower end of its rate corridor unchanged, with the overnight lending rate remaining at 8.25 percent and the overnight borrowing rate at 7.25 percent. — Reuters