Will the Central Bank be able to catch up with the market?

Expectations are for 250 basis points increase

Economists participating in the expectations survey of AA Finans predicted that the policy rate would be increased by 250 basis points to 20 percent. The median expectation of 20 institutions participating in the Bloomberg HT survey was that the policy rate would increase by 250 basis points to 20 percent in August. While all of the 20 economists participating in the Foreks Haber survey predicted that the interest rate will be increased, the median expectation was that the rate would be increased by 150 basis points and increased to 19 percent. The maximum expectation is 30 percent and the minimum expectation is 20 percent in year-end interest rate forecasts.

According to the survey results of AA Finans, the policy rate expectations of economists, who foresee an increase by 100 to 250 basis points, are between 18.50 percent and 20.00 percent. expectations ranged from 20 to 30 percent. The median of economists’ year-end policy rate expectations was 26.50 percent.

A banking sector source, on the other hand, stated that the possibility of an increase in the MPC below the 250 basis points expected in the market has increased,  emphasizing that if there were a different scenario, the Central Bank’s KKM (KKM is FX protected deposits.  Over the weekend, CBRT relaxed restriction’s forcing banks to channel their depositors to KKM)  move would not be necessary. Pointing out that this move of the new economy management shows that old habits continue, the sources noted that the increasing trend in Turkey’s 5-year bankruptcy risk premium CDS will continue.


Economist İnanç Sözer stated that he expects the CBRT to increase the policy rate by 250 basis points to 20 percent, as it did last month, and said, “While inflationary developments and therefore pricing behavior displayed a more negative outlook than last month, demand conditions are still far from improving core inflation. . I think the main importance of this meeting will be how much of an impact the highly qualified renewals in the Monetary Policy Committee will have on the policy stance and text.”


Pro-government columnist Abdulkadir Selvi writing for Hurriyet assured his readers that gradual rate hikes are set to continue, but didn’t forecast 24 August rate hike.  After the Cabinet meeting on Monday, President Erdogan promised to eradicate inflation, yet failed to mention monetary policy.

KKM interest  rate becomes the new policy rate

Another banking sector source stated that the Central Bank has defined the objectives of converting exchange-protected deposits to TL deposits and obligations that will require an interest rate increase, and pointed out that the interest rate decision that will come out of this week’s meeting will not have much effect. While the sources pointed out that the market still does not understand how the policy rate hike is made, they also emphasized that the market has little to do with the policy rate change.



The median estimate of 17 institutions in the Reuters poll was for a 250-basis-point hike in the policy rate to 20%, with forecasts ranging from 18% to 20.50%.


“Durable disinflation is unlikely in an environment where the real policy rate is set to remain deeply negative, even if modest policy rate hikes are complemented by macro-prudential tightening,” HSBC said in a note.


It predicted that the policy rate will rise to 30% by December, but added that risks were still tilted towards a lower terminal policy rate, added Duvar English.



Sources:  Ekonomim.com, Duvar English, PA Turkey


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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 www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.