The successive announcements of macroprudential measures changed the expectations of local and foreign economists for this week’s Monetary Policy Committee meeting of the Turkish Central Bank.
While foreign investment banks and domestic analysts state that a 2.5-5 point increase would not be a surprise, some economists believe that a strong verbal guidance may also be made.
The CBRT’s Monetary Policy Committee will hold its most critical meeting this week on Thursday before the local elections on March 31. The bank, which announced at its February meeting that the policy rate was tight enough and that it would maintain this level for as long as necessary, has its hands tied by domestic and foreign demand for foreign currency, declining reserves, higher-than-desired credit and credit card growth, and unbridled domestic demand.
Foreign investors have started to announce their expectations for an interest rate hike for the March meeting from the Central Bank, which has taken successive quantitative tightening steps in recent weeks. While local economists also stated that there is a need for at least 500 basis points rate hike, some economists noted that the policy rate could be raised to 60 percent and above in April, if not in March, with a much stronger hike. Some economists, on the other hand, shared that a strong verbal guidance, not a hike, may come before the elections.
The CBRT, which further tightened the limits on the growth of general purpose and commercial loans when credit growth reached a remarkable level, again verbally instructed banks to limit credit card cash withdrawals to 3 installments and 25 percent of the card limit.
Goldman Sach said it expects the central bank to raise interest rates by 250 basis points at Thursday’s meeting in order to prevent capital outflows, while Deutsche Bank pointed to a 500 basis point increase.
Serkan Gonencler, Chief Economist at Gedik Investment, said that the latest credit card interest rate move also revealed the need for an additional interest rate hike, and said “In this respect, I think it would be more beneficial to manage expectations if the interest rate hike is implemented without much delay. CBRT may want to postpone the rate hike in April or May in order to monitor inflation a little more. However, I would not consider an interest rate hike in March as a surprise.”
Another economist emphasized that a 500 basis point rate hike may be possible at this week’s meeting, but it will not be enough, and pointed out that the policy rate should be raised to at least 60 percent with a strong rate hike to really fight inflation.
CBRT Monetary Policy Committee will meet under the chairmanship of Central Bank Governor Fatih Karahan on Thursday, March 21. The bank will announce its interest rate decision at 14.00 (GMT+3). At the MPC meeting held last month, the policy rate was kept unchanged at 45 percent.