Experts stated that the interest rate increase process of the Central Bank of the Republic of Turkiye (CBRT) has been completed, but the Bank may continue its current tight monetary policy until there is a significant slowdown in inflation.
The CBRT Monetary Policy Committee increased the one-week repo auction interest rate, which is the policy rate, by 250 basis points to 45%.
In the announcement made by the bank regarding interest rates, “Monetary tightness will be reviewed in case of significant and permanent risks on the inflation outlook.”
AA Finance analyst and economist Haluk Burumcekci, in his evaluation to the AA correspondent, said, “While we maintain our expectation that the policy rate will be maintained at 45% until October, we would like to state that we will reconsider our forecasts after the January inflation to be announced on February 5 and the Inflation Report to be published on February 8.”
Burumcekci pointed out that the door was left open for interest rate increases, with the message that additional tightening could be made in case of upward risks in inflation, taking into account recent developments. He stated that the fact that inflation will most likely occur in January close to the high level in the same month last year suggests that the conditions will be very difficult for the CBRT to manage the disinflation process.
Stating that this situation has the potential to turn inflation expectations upward again, Burumcekci said, “Therefore, depending on the developments in first quarter inflation and inflation expectations, it may be possible for the interest rate cut expectation to be further postponed or to see limited interest rate increase pricing in the markets.”
“The Bank also repeated the message in its policy text that ‘The Board will continue quantitative tightening by increasing the variety of sterilization tools it uses, in order to support the monetary tightening process as well as interest rate decisions’, signaling that moves aimed at withdrawing excess liquidity in the banking system will continue.” Burumcekci stated that the CBRT’s policy text signaled that the interest rate increase process has been completed and that the current level of tightness will be maintained until the main trend of inflation and inflation expectations are compatible with the year-end forecasts.
Central Bank gave a cautious message
Marek Drimal, Societe Generale Central and Eastern Europe, Middle East and Africa Strategist, stated that the interest rate increase made by the CBRT in this meeting may be the last increase.
Stating that the focus from now on will be how long the Bank will maintain the policy rate at 45%, Drimal predicted that the CBRT may keep the policy rate at this level for the rest of the year to ensure a continuous disinflation process and lower inflation expectations.
Drimal emphasized that the CBRT gave a cautious message in the policy text, in line with expectations.
Drimal said that the bank’s message that monetary policy will remain reliably tight as long as necessary for inflation to slow down and inflation expectations to fall is very important, noting that this may be difficult in early 2024 due to the increase in the minimum wage and the slight depreciation of the lira in January.
Drimal stated that the weakening of the lira may slow down in the spring months with the large inflow of foreign money that will benefit from the CBRT’s high-interest rates and the start of the tourism season.
Source: AA / Prepared by Irem Yildiz