Under pressure from Erdogan, who describes himself as the “enemy” of interest rates, the central bank cut the interest rate to 8.5% from 19% in 2021 to stimulate growth and investment .
However, this triggered a record crisis for the lira in December 2021 and pushed inflation to its highest level in 24 years, exceeding 85% last year.
Consequently, the authorities intervened directly in the foreign exchange markets, using tens of billions of dollars in reserves to keep the lira stable for most of this year.
The central bank’s net foreign currency reserves hit a record low of $4.4 billion last month after demand for foreign currency surged during the election.
But the return of Şimşek, who served as finance minister and deputy prime minister from 2009 to 2018, signals a move away from unorthodox interest rate cuts, which were implemented despite soaring inflation and have caused the lira to lose more than 80% of its value in five years.
Looking ahead, a number of banks and analysts were expecting the future development of interest rates after these changes in the Turkish government, either at the next meeting or later. .
Societe Generale
The bank’s expectations point to the lowest rate hike rate expected at the next meeting to be held this month.Banking analysts expect the Turkish Central Bank to raise interest rates by 650 basis points.
Regarding the central bank’s trajectory after the next meeting, the bank’s analyst, Marek Dreamal, expected to “raise interest rates twice in a row by five percentage points…to bring base interest rates to 25% in August”.
JP Morgan
Bank analysts believe that the next meeting will bring a resounding surprise, for the central bank to hike the interest rate by 1,650 basis points in one go, which, if it actually happened, would be the biggest. increase in the Turkish central bank since 2010.
Commenting on the reason for the expected sharp rise, the bank’s Turkish economic analyst, Fatih Alekcik, said: “The purpose of the first interest rate hike could be to close the gap between the interest rate of central bank basis and the average interest rate on deposits. .”
It should be noted that the weighted average interest rate for deposits up to 3 months has increased significantly to around 34%, the highest level in 20 years, according to data from Bloomberg.
Looking ahead, the bank’s analysts stuck with their advice, which they released ahead of the election, in which they see interest rates hitting 30% before the end of the year.
Barclays
Barclays analysts agree with JP Morgan analysts regarding the next move, that the hike will be 1650 basis points, but regarding the future, Barclays analyst Rakan Arguzel believes that the central bank could raise the base interest rate to 35% in October.
Bloomberg Economy
Analyst Silva Bahar Bazeki believes that Simsek’s appointment does not change their expectations to raise Turkey’s base interest rate, the one-week repo rate, to 17% by the end of the year. .
She added that this expectation remains unchanged, as Şimşek is the monetary policy maker the market has wanted.
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