Home Economic Indicator Turkish central bank likely to increase rates to 35% on October 26, says Reuters.

Turkish central bank likely to increase rates to 35% on October 26, says Reuters.

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Turkish Central Bank Expected to Raise Rates to 35% on October 26

The Central Bank’s Efforts to Curb Inflation

Turkey’s central bank is set to deliver another significant rate hike this week, according to a Reuters poll of economists. The bank is expected to raise rates by 500 basis points as it continues its efforts to combat rising inflation. Following years of loose policy, the central bank changed course after the May election and began increasing rates to address the soaring inflation rate, which reached 61.5% in September.

Economists’ Predictions

The Reuters poll, which involved 20 economists, revealed a median estimate of 35% for the policy rate, up from the current 30%. Four economists forecast a 250 basis point hike, while one predicted a 300 basis point increase. ING, in a research note, stated that a rate hike to 35% would help anchor inflation expectations and achieve disinflation based on the 33% inflation forecast for 2024 in the medium-term plan.

Focus on Disinflation

Since June, the central bank has shifted its focus from economic growth to disinflation. It has raised its policy rate by 2,150 basis points and implemented other measures, such as credit tightening, to reduce domestic demand. Despite these efforts, inflation is projected to remain elevated throughout the rest of this year, with estimates ranging from 64.6% to 73.0% in the Reuters poll.

Impact on the Turkish Lira

Further depreciation in the Turkish lira, along with increased taxes and fees, has contributed to inflation and eroded Turks’ savings. The lira has experienced significant devaluation, losing over 30% of its value so far this year.

Economic Growth and Current Account Deficit

The poll also revealed that Turkey’s economy is expected to grow by 4% this year, despite challenges such as devastating earthquakes, monetary tightening, and a global slowdown. However, this is slightly lower than the government’s forecast of 4.4%. In terms of the current account deficit, the median forecast for 2023 is 4.6% of gross domestic product, slightly higher than the government’s prediction of 4%.

Conclusion

Despite ongoing efforts to combat inflation and stimulate economic growth, Turkey still faces significant challenges. The upcoming rate hike is expected to help stabilize the economy and address rising inflation. However, it remains to be seen how effective these measures will be in the long run.