Turkey's central bank expected to hold rates steady in August
ISTANBUL, Aug 14 (Reuters) -Turkey's central bank is expected to leave its key interest rate unchanged at 50% in August, a Reuters poll showed on Wednesday, even though annual inflation started to decline.
All 17 respondents expected the bank to keep its policy rate steady in August.
The central bank raised its policy rate by 500 basis points to 50% in March, citing deterioration in the inflation outlook. It has kept the benchmark rate steady for four months since then, while vowing to act if the inflation outlook worsens.
In total, the bank has raised its policy rate by 4,150 basis points in a tightening cycle since June last year, reversing a previous low-rates policy championed by President Tayyip Erdogan to boost economic growth.
With further falls in inflation expected, the central bank is expected to start cutting the policy rate later this year, according to economists.
The median estimate of 14 economists saw the one-week repo rate standing at 45% at the end of this year. Forecasts ranged from 40% to 50%. Four economists expect the first policy rate cut decision in October while another four expect it to happen in November.
Two economists expect the rate will be kept on hold until December while five economists expect the first policy rate easing to come in the first quarter of next year.
But any significant easing was not expected to come until next year, according to another poll conducted last month. The central bank was forecast to have reduced rates by 2,250 basis points to 27.50% by the end of 2025.
Last week, during an inflation report presentation, Central Bank Governor Fatih Karahan vowed to maintain a tight monetary policy stance, while maintaining end-2024 and end-2025 inflation forecasts at 38% and 14% respectively.
Karahan also said a tight monetary policy stance could be maintained even when the time comes for rate cuts.
Annual inflation fell to 61.78% in July, mainly due to the base effect, from a peak in May and is seen falling further with the impact of tight policy and a slowdown in domestic demand to stand at around 40% at the end of this year.
Morgan Stanley said it expects the policy rate to be maintained in the remainder of the year, as an increase in geopolitical risks and volatility in global markets is seen resulting in rates being held higher for longer.
"Relatively stable FX since end-March and the ongoing slowdown in domestic demand should support a decline in the underlying inflation trend," the bank said in a research note.
"Risks related to relative price adjustments...pricing behavior in services subgroups, as well as elevated inflation expectations do not leave much room for easing... Given ongoing risks around the pace of disinflation, we continue to expect the first rate cut in February."
The bank will announce its interest rate decision at 1100 GMT on August 20.
Reporting by Ezgi Erkoyun
Additional reporting by Susobhan Sarkar
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