All eyes are on the Central Bank’s decision: Here are the latest interest rate forecasts

Financial markets are waiting for the interest rate decision that the Central Bank (CBRT) will announce at 14:00 today.

The CBRT Monetary Policy Board will meet under the chairmanship of Central Bank Governor Fatih Karahan.

In the previous meeting held a week before the local elections, the Central Bank took a surprise step by increasing the policy rate from 45 percent to 50 percent and widening the interest corridor. CBRT also gave the message that it was determined to disinflation.

CBRT President Fatih Karahan gave similar messages during his contacts in the USA. Karahan said last week that they had taken significant steps to control inflation expectations and were “ready to take more.” In the same speech, Karahan also stated that the interest rate increase cycle has come to an end.

Economists’ predictions regarding the decision were as follows:

REUTERS SURVEY

According to a Reuters survey, the CBRT is expected to keep the one-week repo rate constant at 50 percent in April, following the surprise tightening last month in order to control inflation, which is above expectations.

Almost all of the 14 economists who participated in the Reuters survey agree that the policy rate will be kept constant this month, but one economist is of the opinion that the policy rate will be increased by 500 basis points and another economist is of the opinion that the interest rate will be increased by 250 basis points.

AA FINANCE SURVEY

AA Finans’ expectation survey for the CBRT’s Monetary Policy Committee (MPC) meeting to be held on Thursday, April 25 resulted in the participation of 16 economists.

The median value of economists’ expectations regarding the change in the policy rate was to keep the interest rate constant at 50 percent.

According to the survey results, economists’ policy rate expectations were between 50 percent and 55 percent.

The median of economists’ year-end policy rate expectations was 45 percent.

BLOOMBERGHT SURVEY

According to Bloomberg HT’s interest rate survey, market participants predicted that the policy rate would be kept constant at 50 percent at the Central Bank of the Republic of Turkey (CBRT) Monetary Policy Committee meeting to be held on April 25.

The median expectation of the 27 institutions participating in the survey is to keep the policy rate constant at 50 percent.

In April interest rate forecasts, the highest expectation was 55 percent and the lowest was 50 percent.

During the survey period, 25 institutions shared their interest rate forecasts for the end of 2024. Accordingly, the market’s estimate in April for the policy rate at the end of 2024 was 45 percent.

In the 2024 year-end interest rate forecasts, the highest expectation was recorded at 60 percent and the lowest expectation was recorded at 35 percent.

Finally, survey participants were also asked about their expectations for the first reduction in interest rates. Accordingly, 4 of the 23 institutions that shared their forecasts expect the first reduction move from the Central Bank of the Republic of Turkey in September.

While the expectation of six institutions is that the first discount will be in October, 3 institutions expect it in November and 1 institution expects it in December.

FOREX SURVEY

While 14 of the 16 economists who participated in the Foreks News survey expressed their expectation that the interest rate will be left constant, 2 expect the interest rate to be increased by 500 basis points.

In the survey, the median interest rate estimate of 11 economists who gave their opinions for the end of 2024 was 47.5 percent. In year-end interest rate forecasts, the maximum expectation was 60 percent and the minimum expectation was 40 percent.

Economists expect both an interest rate increase and an interest rate cut in 2024. “Do you expect an interest rate cut in 2024?” 7 of the 9 economists who answered the question answered “yes” and 2 answered “no”. “Do you expect an interest rate increase in 2024?” Of the 8 economists who answered the question, 2 answered “yes” and 6 answered “no”.

MORGAN STANLEY

In addition to the surveys, experts from international financial institutions also shared their predictions regarding the decision.

In its monetary policy assessment regarding Turkey, US banking giant Morna Stanley stated that their basic scenario is that the policy rate will be kept at 50 percent until November.

Morgan Stanley analysts stated that they expect the CBRT to continue its tightening trend due to risks to the inflation outlook.

In its assessment, the bank noted that liquidity and precautionary measures indicate a tighter general monetary stance than required by the policy rate.

While Morgan Stanley expects headline inflation to decline to 43.4 percent at the end of the year, it noted that interest rate cuts may begin in the 4th quarter.

The bank said, “In our base scenario, we currently expect interest rates to decline to 45 percent with two interest rate cuts of 250 basis points in November and December.”

INTEREST FORECAST FROM SOCIETE GENERALE

French bank Societe Generale Central and Eastern Europe, Middle East and Africa Strategist Marek Drimal predicted that the CBRT will keep the policy rate constant at 50 percent.

Recalling CBRT President Fatih Karahan’s statement in Washington, “Our biggest priority is to fight inflation and accumulate as much reserves as possible depending on market conditions,” Drimal noted that the attractiveness of the lira may increase in the second quarter of the year.

Emphasizing that the lira can be supported by the seasonal improvement in the current account and the effect of the CBRT’s monetary tightening after the tourism season gains momentum, Drimal said, “We expect the lira to strengthen in the second and third quarters.”

INTEREST RATE PREDICTION FROM THE FRENCH BANK

Inna Mufteeva, Central and Eastern Europe, Middle East and Africa Economist of another French bank, Natixis, said, “Considering the positive impact of this interest rate increase on the lira following the unexpected interest rate increase in March, which reinforced the reliability and independence of the current CBRT Governor, the CBRT will not make this decision from now on.” “He may want to see how it reflects on the Turkish economy,” he said.

Stating that the lira has stabilized for a while, or at least the rate of depreciation has slowed down, Mufteeva stated that the positive trend in foreign exchange is expected to alleviate some of the pressures arising from domestic prices in the coming months.

Mufteeva stated that since inflation data for April will be announced on May 3, it may be reasonable to expect this good trend in price dynamics to be confirmed.

On the other hand, Mufteeva stated that communication and forward-looking verbal guidance could be clearly hawkish, and predicted that, considering these factors, the current situation will continue and interest rates will remain constant.