Turkey Ready For Rate Hike
The Turkish Central Bank is ready to execute a rate hike amid lira depreciation, inflation heating and recession concerns. The lira has tumbled 40% versus the greenback in 2018. Inflation hit its maximum in around 15 years. Turkey's economic growth slowed to 5.2% in Q2 and it’s expected to weaken further. Thus, the Central Bank promised to regulate its monetary stance at Thursday's policy committee meeting.
Phoenix Kalen, strategist at Societe Generale projects that benchmark repo rate will he increased to 20.75% and will be made as primary policy tool. He said: "Although this amount of monetary tightening may disappoint market expectations and spark renewed TRY weakness, the decision would reflect the prioritization of Turkish authorities' concerns regarding a rapidly decelerating economy".
Meanwhile, Guillaume Tresca, senior EM strategist at Credit Agricole claimed:"The central bank has a complete lack of credibility," and: "We know they are not independent and that is it. So, you cannot predict what they will do, what you are trying to do is to predict what President Erdogan will do".
Ercan Erguzel, Morgan Stanley economist, forecast the repo rate to be raised by 425 bps to 22.0%, explaining: "On the financial stability front, the biggest risk is the corporate sector's short FX position and its indirect impact on the banking system's asset quality".
Mark Mobius, head of the emerging market investment trust Mobius Investment Trust, was skeptical of the decision, saying: "I'm not convinced that raising interest rates is going to do anything, it’s all about confidence," adding: "OK, they raised interest rates, but what happens? People then say 'you're not confident. You're not confident in your own currency therefore you're offering us some crazy interest rates'".