Reuters:  Turkish central bank governor hints at rate cut, economists say

Turkey’s central bank hinted on Wednesday it is nearing an interest rate cut during conference calls in which its governor did not repeat past pledges to keep policy tight relative to inflation, several investors who participated in them said.

Sahap Kavcioglu did not mention two promises made in past calls and policy statements: that the key rate would remain above inflation and that tight policy would be maintained decisively, the investors said.

Eight foreign and local economists and investors told Reuters they interpreted the comments as a shift that could pave the way to a prompt cut to Turkey’s 19% policy rate, which is among the world’s highest, yet only slightly above the inflation rate.

A central bank spokesperson declined to comment.

In recent weeks, analysts had expected easing to begin toward the end of the year. The lira was volatile after the meeting, but appears settled by Friday morning. Dollar/TL is starting the day in Asia at 8.28-29.


“They definitely changed the language, they dropped that promise. They are expecting a significant drop (in inflation),” a foreign investor who was on one of the two calls said, adding that “there was no longer an explicit promise” to keep rates above inflation.

When questioned about it, the central bank “refused to confirm or deny it,” the source, who requested anonymity, said.

Consumer prices shot up 18.95% in July and data on Friday is expected to show annual inflation remained flat in August – and well above the central bank’s target of 5%.

Analysts are less confident than the central bank that inflation will cool in coming months, and some say rate hikes are needed. Yet most expect a cut in the fourth quarter given pressure for monetary stimulus from President Tayyip Erdogan.

“No more rate hikes are coming,” another foreign investor on the call said.

The next policy meeting is due to take place on Sept. 23.



Kavcioglu – who Erdogan appointed in a surprise move in March – told investors the policy stance would ensure a fall in inflation that should begin in the fourth quarter, investors on the calls said.

The bank also said that other major central banks are allowing headline inflation to run well past their policy rates, given monetary policy alone cannot solve pandemic-related price pressures.


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Nilufer Sezgin, deputy general manager at Is Portfoy in Istanbul, said the central bank stressed that some core inflation measures are lower than others, especially given high prices of food and other commodities.

“We can expect core indicators such as non-food prices to weigh more heavily on the central bank’s policy decisions. This may bring forward the rate cut,” she said.


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Kavcioglu also said there is no need for credit growth to slow further, after a recent decrease, and that the bank was working on additional possible measures to address consumer loans, five sources said.

Turkey’s economy grew 21.7% year-on-year in the second quarter, official data showed on Wednesday, rebounding powerfully after a sharp slowdown a year earlier driven by COVID-19 restrictions.

However, the boom in economic activity is feeding into – and in turn being eroded by – inflation that has remained in double digits for most of the last four years.


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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.