Interest rate forecast from Fitch

Having raised its growth expectation for the global economy from 2 percent to 2.4 percent for 2023, international credit rating agency Fitch Ratings announced that the Central Bank of the Republic of Turkey (CBRT) is expected to make a significant increase in the policy rate at its meeting and to raise the policy rate to 25 percent by the end of 2023. International credit rating agency Fitch Ratings has raised its growth expectation for the global economy from 2 percent to 2.4 percent for 2023. Fitch published the June issue of its Global Economic Outlook Report under the title "Central Bank Inflation Struggle Continues." The report conveyed that global growth is showing resilience in the short term, but if core inflation remains stubbornly high, central banks will have to maintain their tightening policy in the coming months. The report, which points out that the global growth outlook for 2024 has worsened due to prolonged monetary policy adjustments and their impact on the economy, reported that economic activities this year were better than expected and that Fitch increased its growth forecast for 2023, which was 2 percent in its previous report, to 2.4 percent. The biggest revisions are in emerging markets The report draws attention to the fact that the biggest revisions were in emerging markets, where incoming data was stronger than expected, and noted that the growth expectation for emerging markets excluding China was increased from 2 percent to 2.9 percent, while significant improvements were seen in Brazil, India, Mexico, and Russia. The report also stated that the 2023 forecast for China was increased from 5.2 percent to 5.6 percent, and that the recovery has stalled somewhat in recent months, but consumption continues to normalize and macro policy has begun to ease. No revisions were made to the growth forecast for Turkey The report emphasized that the appointment of a new finance minister and central bank governor following President Recep Tayyip Erdoğan’s re-election increased the likelihood of a return to more orthodox economic policies. The report recalled that Treasury and Finance Minister Mehmet Şimşek said that Turkey would adopt “rational” policies and that “a predictable Turkish economy based on rules will be the key to achieving the desired prosperity,” and that the promise of a more orthodox approach to the economy increased expectations for a tighter monetary policy. The report reported that the Central Bank of the Republic of Turkey (TCMB) is expected to make a significant increase in the policy rate at its meeting tomorrow and raise the policy rate to 25 percent by the end of 2023, while the TCMB is expected to keep interest rates constant next year before cutting interest rates in 2025. The report, which stated that Turkey’s growth expectation for this year was left unchanged at 2.5 percent and for next year at 3 percent, pointed out that a growth rate of 3.8 percent was estimated for 2025. The report noted that the recent weakening of the Turkish lira would increase the country’s net trade, while private consumption would be supported by wage increases and increasing confidence in the economy. US growth forecast for 2023 increased The report emphasized that the growth forecast for this year for the US, where growth in consumption and employment continues to remain strong, was increased from 1 percent to 1.2 percent. The report conveyed that the policy tightening by the US Federal Reserve (Fed) is still expected to cause a mild recession in the country, but that the timing of this has been postponed to the last quarter of the year and the first quarter of 2024, and that within this context, the growth forecast for next year has been revised down from 0.8 percent to 0.5 percent. The report stated that the Eurozone growth forecast of 0.8 percent for 2023 and 1.4 percent for 2024 was unchanged, reminding that the natural gas crisis in Europe had eased, but the European Central Bank (ECB) had tightened its monetary policy more aggressively. The statement, which pointed out that higher interest rates increase household debt, noted that a recession is expected in the United Kingdom in 2023. No interest rate cuts are expected in the US and Europe this year The report stated that the global growth forecast for 2024, which was 2.4 percent in the previous report, was revised down to 2.1 percent, reminding that headline inflation had fallen but core inflation remained stubbornly high. The report noted that central banks in developed countries were becoming more concerned about the continuation of inflation, and that the Fed and ECB were expected to raise interest rates twice more in the coming months. The report stated that the Fed is expected to raise interest rates to 5.75 percent and the ECB to 4.5 percent, while the Bank of England is expected to raise interest rates to 5.25 percent, and that no cuts are foreseen until next year. In contrast, it was noted that China has lowered rates in developing countries, and that Brazil and Mexico are expected to make cuts later this year. The report stated that low unemployment rates contribute to growth resistance, but that recent monetary tightening, which has gained momentum, has put pressure on US and European demand. The report indicated that there was no sudden credit crisis following the banking stresses experienced in the US, but that bank funding costs have increased and that there is a risk that credit tightening will affect growth more sharply than expected.