Hakan Aran expects Turkiye’s economy to stabilize by 2026, with significant rate cuts and a cooling economy as key steps.
Hakan Aran, CEO of IsBank, anticipates the first interest rate cut of 250 basis points to take place in November. He expects Turkiye’s policy interest rate to drop to 45% by the end of 2024 and further down to 25% by the end of 2025. According to Aran, the economy will only reach a balanced state by 2026, despite ongoing efforts to control inflation and achieve price stability.
Key Turkiye Economic Predictions
In a recent statement, Aran emphasized that Turkiye’s primary focus this year has been on achieving price stability and reducing inflation. This focus has resulted in substantial monetary tightening measures, the effects of which are now beginning to show. However, he warned that the reduction in production, demand, and employment is likely to deepen, as reflected in the drop of the seasonally adjusted real sector confidence index below the critical level of 100 for the first time since 2020. Other confidence indices, including those for consumers, services, retail trade, and construction, are also showing continued deterioration.
- Impact on Inflation: Aran stressed that to secure price stability, sacrifices must be made, particularly in areas like growth, employment, production, and exports. He highlighted that Turkiye must undergo structural reforms and focus on long-term projects to sustain economic growth and keep the unemployment rate below 10%.
Rate Cuts and Economic Outlook
Aran forecasts that the Central Bank of Turkiye (CBRT) will not take any action at the October Monetary Policy Committee meeting. However, he anticipates that the CBRT will signal the beginning of a rate cut cycle, with the first cut expected in November. This cycle could see the policy interest rate reduced to 45% by the end of 2024 and 25% by the end of 2025.
- Bank Profitability: The CEO noted that the tightening measures have placed significant pressure on the banking sector, particularly on net interest margins and profitability. However, he remains optimistic that the situation will improve from November onward, as inflation stabilizes and pricing behavior changes.
- Household Confidence: Aran also touched on household confidence, suggesting that it will only improve when monthly inflation drops to around 1% or lower. He pointed out that the back-to-school season and rising costs will likely delay this improvement until October.
Long-Term Economic Strategy
Aran stressed the importance of avoiding excessive measures that could harm Turkiye’s production and export-oriented economic model. He emphasized that a balanced and multi-faceted approach is crucial for long-term success.
- Focus on Structural Reforms: Aran concluded by calling for the implementation of structural reforms and long-term projects that would prevent future economic imbalances. He believes that only by addressing these issues can Turkiye achieve sustained economic growth and maintain employment levels.
Bank Performance and Future Prospects
Reflecting on the banking sector, Aran revealed that non-performing loans (NPLs) have reached ₺216.5 billion as of June 30, 2024, with ₺147.9 billion from commercial loans and ₺68.8 billion from personal loans, including ₺31.2 billion from credit cards. He mentioned that while the sector has faced challenges, the trend is expected to shift in November, potentially making banking profitable again.
- Credit Card Adjustments: Aran noted that no further regulations are necessary for credit cards, as the system is self-correcting. He highlighted that the current economic climate has led to increased default rates, reducing the spending capacity of cardholders.
By maintaining a focus on long-term goals and adopting a strategic approach to monetary policy, Aran remains hopeful that Turkiye will overcome its current economic challenges and emerge stronger by 2026.
Source: Dunya.com / Prepared by Irem Yildiz