Further rate h kes are unl kely

Dünya Executive - - REPORT - Jason Turvey, econom st, Cap tal Econom cs

The Turkish Central Bank’s decision to leave interest rates unchanged today and the accompanyi­ng statement reinforce our view that last month’s aggressive rate hike didn’t represent a shift back to orthodoxy. Interest rates are unlikely to be raised further. Indeed, the bigger risk in our view is that, with President Erdogan starting to raise pressure for lower interest rates, that policy is loosened prematurel­y. The decision to leave the benchmark one-week repo rate on hold at 24.00 percent was in line with the consensus. 25 out of the 29 analysts polled by Bloomberg ahead of the meeting, including ourselves, correctly predicted the outcome. Looking ahead, we expect inflation to rise a bit further over the coming months. But unless that is accompanie­d by another sharp sell-off in the lira, it probably won’t be enough to prompt additional rate hikes. Even if the Central Bank did feel that further tightening is warranted, experience suggests that it would most likely be delivered through the interest rate corridor. The bigger risk is that mounting political pressure on the Central Bank prompts interest rates to be cut prematurel­y, perhaps as soon as early next year when headline inflation will start to drop back. (October 25)

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