Daily Sabah (Turkey)

CBRT to hold rate steady again but economists see hike coming

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TÜRKİYE’S central bank is envisaged to leave its key interest rate unchanged for a second consecutiv­e month this week, according to surveys. Yet, most economists forecast another rate hike later this year.

The Central Bank of the Republic of Türkiye (CBRT) held its one-week repo rate steady at 45% last month after an aggressive tightening cycle since a policy reversal after last year’s general and parliament­ary elections.

The bank has recently moved to tighten policy, including action on reserve requiremen­ts, prompting some banks to either reduce loan limits or even stop offering loans. On Saturday, the CBRT raised the maximum interest rate on credit card cash withdrawal­s.

Treasury and Finance Minister Mehmet Şimşek last week promised tighter fiscal policy to help the bank reduce inflation.

Authoritie­s are expected to take more policy steps to cool inflation after local elections on March 31.

All but two of 22 respondent­s in a Reuters poll expect the bank to keep its policy rate steady tomorrow, while two forecast a 250-basis-point hike.

The poll unveiled on Monday also showed that eight of 12 expected the bank to hike again later this year.

In a previous poll conducted in February, economists expected 500-750 basis points of policy rate cuts by the end of the year.

Şimşek on Sunday said he believed that with additional fiscal policy measures, inflation would be within the central bank’s forecast range in the period ahead.

“If we believe that this will not be the case, we will take additional measures.

This is an issue under the central bank’s responsibi­lity,” Şimşek told an interview with broadcaste­r Kanal 7.

He added that the central bank had a free hand and would do whatever is necessary to lower inflation.

After President Recep Tayyip Erdoğan’s reelection in May, Türkiye abandoned a yearslong low rate policy in favor of tightening, raising its key rate to 45% from 8.5% since June.

Capital Economics said in a research note to clients that the data released since the central bank’s February hold decision suggest that the disinflati­on process has taken a step back and that the risk of a restart of the hiking cycle is growing.

A rate hike “looks unlikely given how close it is to the local elections taking place on 31st March. But the statement will likely maintain a hawkish tone and the possibilit­y of a 250-500bp hike in April is becoming more likely.”

Goldman Sachs expects the central bank to hike rates by 250 basis points this week, given rising pressure on reserves and the lira. The bank said it has already tightened policy via macroprude­ntial measures and reserve requiremen­ts.

“We think the purpose of the hike will mostly be to signal that the central bank will and can hike if needed in line with its own guidance and avoid the risk that the macro-prudential measures taken in response are interprete­d as a return towards a less orthodox policy framework,” Goldman Sachs said.

On Friday, the central bank’s monthly survey of market participan­ts’ expectatio­ns showed that Türkiye’s year-end annual inflation was 44.19%, higher than the bank’s own forecast of 36%.

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