Deutsche Bank/Wietoska: We expect the first interest rate cut from the CBRT in the last quarter of 2024

Deutsche Bank Middle East and Eastern Europe Research Director Wietoska stated that they foresee that the CBRT may start interest rate cuts as of the beginning of the 4th quarter of the year. Deutsche Bank Middle East and Eastern Europe Research Director Christian Wietoska answered questions from Ceren Dilekçi Köseoğlu from BloombergHT. Deutsche Bank, which noted in its note on the Turkish lira last week that carry trade transactions have returned, had adopted a positive approach regarding the Turkish lira as of September. Wietoska, who was part of the team that prepared the report, stated that their 12-month expectations regarding the TL are much more constructive. Noting that the return in the monetary policy stance and the fiscal measures taken since the elections support the TL, Wietoska said, "We see that cash inflows to the market are accelerating with the rebalancing of the economy. The Turkish bond market has not experienced such high inflows for a long time. The stabilization of inflows on the capital side may bring about a better process." “Our exchange rate target for the end of 2024 is 36” Noting that they expect the increase in the exchange rate to continue in nominal terms, Wietoska continued her words as follows: “We believe that the exchange rate will perform very well in real terms especially towards the elections. Our target for the Dollar/TL exchange rate as of the end of 2024 is 36. We believe that the nominal depreciation will be very gradual.” Drawing attention to the fact that the rally in long-term bonds has accelerated recently, Wietoska stated that they expect a 25 percent return on 10-year bonds by the end of 2024. “Early interest rate cut will put pressure on portfolio flows and TL” Noting that they expect a 250 basis point interest rate hike from the CBRT in today’s meeting, Wietoska said that their base scenario is for an interest rate hike of another 250 basis points in January. According to Wietoska, there is a risk that interest rates will remain at the level of 42.5 percent. For this reason, the messages that the CBRT will give on Thursday will be important. The institution’s peak interest rate expectation is 42.5-45 percent. Noting that they expect inflation to peak at 70 percent in May and then fall sharply in the summer, Wietoska said the following regarding interest rate cut expectations: "This decline will give the TCMB room to cut interest rates in 2024. We anticipate that the TCMB may start cutting interest rates as of the beginning of the 4th quarter. Recently, expectations of interest rate cuts from the FED and ECB have been brought forward. I think this may happen in Turkey as well. The TCMB may start cutting interest rates after the summer. If the interest rate cut starts too early, it may cause pressure on portfolio flows and the TL. If inflation falls to 50 percent, the TCMB may start discussing the speed of the interest rate cut. Our basic scenario is that interest rate cuts will start as of the last quarter of 2024, but we do not rule out the possibility of starting interest rate cuts at the end of the summer."