Ambitious CBRT forecast from SocGen

According to Societe Generale analysts, the Central Bank of the Republic of Turkey (TCMB) will exceed expectations with a 600 basis point interest rate hike at its September meeting. Societe Generale predicted that the Central Bank of the Republic of Turkey will raise the policy rate to 31% at its September meeting, and that this will be followed by 600 basis point increases in the fourth quarter and 200 basis point increases in the first quarter of 2024, and that the interest rate will be increased to 40%. SocGen analysts, including Phoenix Kalen, expect the lira to weaken for the rest of the year. The analysts' year-end USD/TL expectation is at 30. The analysts said, “The TCMB will most likely make solid interest rate hikes, while real interest rates will remain sharply negative due to the increase in inflation. The normalization process of the financial environment, which provides more flexibility, is positive in the medium term. However, this situation also poses risks that could weaken the lira in the short term.” While stating that import demand remains strong, the analysts predicted that the current account deficit will increase again this winter with the end of the tourism season. “While a gradual return to orthodox policies next year looks set to improve Turkey’s fundamentals, we expect further but slower depreciation in the lira,” SocGen’s report said.