With very little time left before the elections, activity in the economy has increased. While credit channels were tightened with reserve requirement steps, foreign banks and financial institutions began to state in their reports that additional interest rate increases were inevitable.
In this context, Bank of America economists stated in a research report they published that the Central Bank is likely to increase interest rates by 300-500 basis points in April.
Stating that additional interest rate increases are not a base scenario at this stage, economists think that “there is room for optimism” in Turkish assets in the second half, regardless of the path chosen by the CBRT. Economists stated that a further increase in the policy rate would help manage inflation expectations better and increase confidence in the CBRT.
DEUTSCHE BANK: INTEREST RATE MAY INCREASE TO 50%
Another foreign bank expecting an interest rate increase from the Central Bank was Deutsche Bank. The bank revised its policy rate forecast due to the course of inflation dynamics in Turkiye. The bank predicted that the CBRT could increase interest rates from 45% to 50% at its March meeting. Analysts said in the report, “Policies are moving in the right direction. Fitch’s latest credit rating increase is also a reflection of the return to orthodox policies. However, difficulties in the economy continue in the short term. These include persistent inflationary pressures and a significant decrease in the bank’s net reserves. Upcoming local elections create uncertainty. There is also concern that the depreciation in TL will increase the demand for foreign currency.”
CREDIT RATING STATEMENT FROM FITCH ANALYST MORALES
Rating statement from Fitch Turkiye Analyst Morales Erich Arispe Morales, Senior Director and Turkiye Analyst of the international credit rating agency Fitch Ratings, made statements after Fitch Ratings increased Turkiye’s credit rating from ‘B’ to ‘B+’ and its rating outlook from ‘stable’ to ‘positive’ last week.
Erich Arispe Morales said that they have increased confidence that Turkiye’s current economic policy axis is more durable and that the policies will be sustained. “The effectiveness of the policy change, the improvement in reserve levels, the reduction of foreign currency protected deposits without increasing dollarization, the reduction of the current account deficit and the developments regarding the easing of inflation expectations confirm our assessment that we announced on Friday last week.”
Morales stated that Fitch Ratings confirmed Turkiye’s credit rating as ‘B’ in September last year and increased the rating outlook from “negative” to “stable”. “This decision reflected our assessment that the change in Turkiye’s economic policies was consistent in reducing the risk of macroeconomic and financial instability. Since September, we have higher confidence that the current policy axis is more durable.”
Source: Patronlardunyasi / Prepared by Irem Yildiz