Attention is drawn to the Turkish Central Bank

All attention in domestic markets has turned to the interest rate decision to be announced by the Central Bank of the Republic of Turkey (TCMB). While the Turkish lira has reached historical lows against the dollar, domestic markets have focused on the interest rate decision of the Central Bank of the Republic of Turkey (TCMB). The general expectation in the market is that interest rate hikes will continue at the second meeting of new President Hafize Gaye Erkan. In the Bloomberg HT survey, the median expectation was that interest rates will increase by 500 basis points to 20 percent in July. In the July interest rate survey, the maximum expectation was 21.5 percent and the minimum expectation was 17.5 percent. In the survey, the median expectation for the end of 2023 was 25 percent. In the June survey, the median expectation for the end of 2023 was 30 percent. What do foreign institutions expect? Analysts from foreign institutions also believe that the series of increases will continue at the second meeting of the TCMB in the new term. BofA economists stated that there could be an interest rate hike of up to 500 basis points at this meeting of the CBRT, and said, “There could be an increase between 300 and 500 basis points. We think that the CBRT will make the transition gradually in order not to cause unexpected damage to the economy. It is unclear how long the interest rate hikes will last. We expect the policy rate to be at 35 percent by the end of the year.” Finally, the Institute of International Finance also shared its assessment of the CBRT. The Director of the Institute’s CEEMEA Research Unit, Uğraş Ülkü, announced on his Twitter account that the CBRT would increase interest by 250 basis points to 17.50 percent on Thursday, leaving it below the 24-month inflation expectation of 19 percent. Ülkü stated in his post that an increase of 500 basis points and a positive real interest rate relative to expected inflation could help limit the projected increase in inflation. The exchange rate has increased since the first meeting, tax increases have come While the rapid increase in the exchange rate has drawn attention since the first meeting of the new TCMB administration, tax increases that pose an upward risk to the inflation outlook had occurred. In the last month, the USD/TL exchange rate increased by up to 8 percent. While VAT increases were experienced in many product groups before the meeting, the SCT increase on fuel was also one of the hot developments in terms of inflation. In the market participant survey conducted by the TCMB, the inflation expectation for the next 12 months was 33.21 percent, the highest expectation of this year.