Apr 24 2024: A recent Reuters poll of economists indicates that Turkey’s central bank is unlikely to reduce its policy rate of 50% before the fourth quarter of this year.
This decision follows a 500 basis points rate hike in March, which came after a pause in February’s aggressive tightening cycle, prompted by concerns about the inflation outlook.
Since June, the central bank has increased borrowing costs by 4,150 basis points, reversing a previous low-rate policy aimed at stimulating economic growth, as favored by President Tayyip Erdogan.
The bank’s stance is to keep rates tight until a substantial decline in monthly inflation trends is observed. The poll suggests a potential 250 basis points reduction in Q4, bringing the rate to 47.5%. Further decreases are anticipated next year, with a projected rate of 30.0% by the end of 2025.
During a recent panel in Washington, central bank Governor Fatih Karahan stated that the rate-hiking cycle has concluded, and inflation is expected to align with the 36% target by year-end.
Economists in the poll forecasted an average inflation rate of 44.2% for this year, up from the 42.1% predicted in January. Turkey’s annual inflation reached 68.5% in March and is expected to peak around 70% before declining in the latter half of 2025.
The country’s recent local elections saw Erdogan’s AK Party lose mayoral seats in several provinces, notably Istanbul and Ankara, reflecting public dissatisfaction over the cost of living, which influenced the party’s worst election results since its inception over two decades ago.
The poll also predicts Turkey’s economy to grow by 3.0% this year and 3.3% next year, slightly revised from January’s forecasts of 2.8% and 3.5%, respectively.
