Anticipated Monetary Pause: Turkish Central Bank Eyeing Future Hike

By Ece Toksabay

Economic Forecast

ANKARA, March 18 (Reuters) – Turkey’s central bank is anticipated to maintain its key interest rate unchanged at 45% this week, keeping firm for a second consecutive month. However, a future rate hike looms on the horizon, as indicated by a recent Reuters poll released on Monday.

All but two of 22 respondents expect the bank to uphold its policy rate in March, with only two predicting a 250-basis-point increase. The survey also reveals that eight out of 12 economists are bracing for a potential hike later in the year.

Shift in Expectations

In a previous poll conducted in February, economists were envisioning substantial policy rate cuts ranging from 500 to 750 basis points by year-end.

Inflation Control Measures

Following an aggressive tightening cycle that led to the central bank keeping its key interest rate stable at 45% last month, Finance Minister Mehmet Simsek recently pledged tighter fiscal policies to aid in curbing inflation.

Anticipated Austerity Post-Elections

With local elections scheduled for March 31, authorities are poised to implement additional policy measures to combat inflation, potentially exacerbating the challenges already faced by Turkish citizens amid years of escalating prices.

Central Bank Strategy

Capital Economics highlights that recent data following the central bank’s decision in February suggests a setback in the disinflation process, escalating the likelihood of a resumption of rate hikes.

Market Insights

Goldman Sachs foresees a 250-basis-point rate increase by the central bank this week, citing mounting pressure on reserves and the national currency, the lira. The investment bank notes that while policy has already been tightened through macroprudential measures and reserve requirements, the impending hike is primarily to convey the central bank’s commitment to further hikes as necessary.

Focus on Inflation

Friday’s release of the central bank’s monthly survey of market participants’ expectations indicated that Turkey’s year-end annual inflation is projected at 44.19%, surpassing the bank’s own 36% forecast.

Upcoming Announcement

The central bank’s rate decision is slated for disclosure at 1100 GMT on March 21.

(Reporting by Ece Toksabay and Vijayalakshmi Srinivasan; Editing by Daren Butler)

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