Foreign institutions expect changes in CBRT interest rate policy

CBRT

The Central Bank of the Republic of Turkey will announce the last policy rate decision of 2023.

While the interest rate decision expectation in the markets is shaped as 250 basis points, Marek Drimal, Strategist for Central and Eastern Europe, Middle East and Africa at Societe Generale and Piotr Matys, Senior FX Analyst at In Touch Capital Markets, predict that the Central Bank of the Republic of Turkey (CBRT) may be nearing the end of the tightening cycle in monetary policy and the pace of tightening may slow down.

Societe Generale Central and Eastern Europe, Middle East and Africa Strategist Marek Drimal reminded that the CBRT increased the policy rate by 500 basis points to 40 percent at the last meeting and announced that the level of monetary tightening required to establish disinflation was significantly approached.

Accordingly, the pace of monetary tightening may slow down and the tightening cycle may be completed in a short time, Drimal said, adding that as a result of this guidance, the CBRT may halve the pace of tightening at the December meeting.

Drimal predicted that the bank would raise the policy interest rate by 250 basis points to 42.50 percent.

Stating that the CBRT may raise the policy rate to 45 percent with another 250 basis points increase in January, Drimal said that inflation could rise to 68 percent in May 2024 and then fall rapidly to 39 percent by the end of 2024.

Piotr Matys, Senior FX Analyst at In Touch Capital Markets, said that the CBRT’s expected rate hike could be accompanied by the bank’s official announcement that interest rates are high enough.

Matys said that in nominal terms, there is a very attractive carry trade opportunity in TRY, but in real terms, TRY is not yet attractive enough for carry trade investors.

This could change when inflation in Turkey finally reaches its peak in the first half of the year and starts to fall, Matys said, adding that this could coincide with the Fed starting to cut interest rates in the second half of 2024.

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