Inflation Projected to Fall to 40% by Year-End, with 500 Basis Points Interest Rate Cut Expected
Deutsche Bank’s Head of Research for the Middle East and Eastern Europe, Hans-Christian Wietoska, forecasts a significant disinflation process in Turkiye, predicting that inflation will drop to 40% by the end of the year. He also anticipates a 500 basis points interest rate cut in November and December. Wietoska discussed Turkiye’s macroeconomic policy changes, inflation and interest rate expectations, and investors’ perspectives on Turkiye.
Wietoska commended Turkiye for initiating changes in its macroeconomic policies last year, highlighting the importance of maintaining these changes through local elections. He noted that the Central Bank of the Republic of Turkiye’s (TCMB) 500 basis points interest rate increase before the local elections was a strong message and a game-changer, dispelling expectations of further devaluation of the lira.
Wietoska emphasized the importance of clear and transparent communication with investors, which enhances confidence in future policies. Despite challenges, he believes TCMB has the necessary framework to overcome them.
Inflation and Interest Rate Outlook
Wietoska stated that inflation has peaked and is expected to decline, marking the beginning of a strong disinflation process. He predicts that by year-end, inflation will fall to 40%. The next phase will focus on reducing inflation to 20%, which he considers a significant challenge. Wietoska also noted that as growth slows, TCMB’s response will be crucial. He expects a 500 basis points interest rate cut in November and December, continuing into early next year.
Investor Sentiment and Market Dynamics
Wietoska highlighted the positive shift in investor sentiment towards Turkiye, with net reserves exceeding $10 billion and international reserves nearing $150 billion. He expects significant inflows into Turkish lira-denominated bonds, with potential investments reaching $20 billion by year-end and up to $40 billion next year. Deutsche Bank economists project a 3.5% growth for Turkiye’s economy this year.
TL Bonds and Market Opportunities
Wietoska noted increased interest from international investors in TL bonds, with $8.5 billion inflows in the past eight weeks and potential for an additional $10-15 billion by year-end. He sees further growth next year, potentially reaching $30-40 billion in total investments.
Wietoska concluded by expressing optimism about Turkiye’s ability to balance its economy without entering a recession, which would make it a unique example globally. He underscored the importance of avoiding policy mistakes mid-way.
Source: AA / Prepared by Irem Yildiz