►SIGNALS OF RATE HIKE CONTINUATION
The Central Bank (CB) hiked the policy rate in line with the forecasts and signaled the rate hike continuation next month by reiterating its determination to fight against inflation. The deposit interest rates won’t be below 40%, and loan interest rates will be permanent at around 50% following the decision. That will pressure the domestic demand and raise problems in the companies’ balance sheet and forecasts of the start of disinflation in 2024. The PPK decision supports the recovery in the CB’s credibility and will positively contribute to macroeconomic stability with the support from the economy administration. Although the rate hike limits losses in value, we don’t estimate TRY appreciation before the next year due to ongoing problems.
►CONTINUES TO RUN AFTER INFLATION
DR. FATIH OZATAY
The CB’s inflation forecast of 33% for 2024 will rise to around 38%. That’s why the policy rate is still far from that level. It means that the CB will hike the policy rate. But it will take the risk to run after inflation as much as it delays. It would catch inflation more easily if it raised the policy rate by 7.5-10 points at this meeting. The negative real interest rate period continues. The positive side of the decision is that the rate hike didn’t remain below the forecasts. The atmosphere would turn positive if the CB raised the policy rate sharply. The CB will hike the interest rate by another five points, which will also be insufficient.
►THE HIGHEST NOMINAL LEVEL AFTER 2003
The policy rate has reached the highest nominal level since September 2003. We attach importance to the CB to continue sharp rate hikes and to emphasize the gradual tightening towards the future. We expect selective tightening measures to consumer loans and credit cards by the CB or Banking Regulation and Supervision Agency and the CB to sharply raise the policy rate to 35% in a short period. Then, it will suspend rate hikes before local elections and hike the interest rate rapidly to 40%.
►RIGHT STEP TO THE RIGHT DIRECTION
PROF. DR. HAKAN KARA
The decision is a step taken in the right direction. However, the CB should act faster to break the inflation inertia and correct forecasts. I understand its constraints. The CB strives to control inflation without paving the way for a sharp economic slowdown. That seems to continue until the elections. But it’s impossible to achieve it just with the policy rate. The fiscal policy and macroprudential policy should also be prepared with a correct composition.