Türkiye's central bank is widely expected to deliver another interest rate hike this week, in what would mark an end to its aggressive tightening cycle, according to surveys.
The Central Bank of the Republic of Türkiye (CBRT) has lifted its key rate by 3,400 basis points since June, including a hike of 250 basis points to 42.5% last month.
The hikes came after the new economy administration reversed yearslong easing policy and embraced a sharp policy tightening after President Recep Tayyip Erdoğan won reelection in May.
The policy shift aims to arrest inflation, reduce trade deficits, boost foreign investment, rebuild foreign exchange reserves and stabilize the Turkish lira.
The central bank is envisaged to raise its one-week repo rate by another 250 basis points to 45% this Thursday, according to a Reuters poll of 25 institutions on Monday.
A survey by Anadolu Agency (AA) also predicted a quarter of a point rate hike.
Last month, the central bank said it expects to "complete the tightening cycle as soon as possible," repeating that its policy was "significantly close to the level required to establish the disinflation course."
After this month, all of those surveyed expect no more rate hikes, based on the Reuters poll.
"We expect interest rates to peak at 45%, with rate cuts expected to start only in 2025," said UniCredit, which is more hawkish than the median on when cuts begin.
The poll's median forecasts put the policy rate at 45% through to end-September, before dropping to 40% by year-end.
Economists in the AA survey see the year-end policy rate dropping to 38.75%.
Continued tightening
Hafize Gaye Erkan, the CBRT governor, was cited as telling investors this month that the bank would take any action needed as it sought to lower inflation, which neared 65% last month.
Marek Drimal, a strategist for Societe Generale covering Central and Eastern Europe, the Middle East and Africa, suggested that the central bank could adopt a cautious tone this week.
Drimal said the central bank would pledge to continue quantitative and credit tightening by withdrawing liquidity from the market and keeping credit growth under control.
"It will commit to maintaining tight monetary conditions for an extended period to ensure a gradual decline in inflation to the 5% target in the coming years," he told Anadolu Agency (AA).
Eyes will be on how long the policy rate will be kept at 45%, he added.
Drimal noted that the bank might refrain from rate cuts this year to secure a slowdown in inflation both in 2024 and 2025. He said inflation could decline to 41% by the end of the year.
Nick Stadtmiller, head of product at research company Medley Advisors, echoed a similar sentiment.
Stadtmiller suggested this week's 250 basis point rate increase could mark an end to the central bank’s tightening cycle.
Inflation could potentially start to decline after reaching its peak in May, paving the way for subsequent rate cuts, he noted.
Inflation, growth
Inflation is forecast to stand at 42.1% by end-2024, 26.3% by end-2025 and 18.5% by end-2026, according to the Reuters poll's median responses.
The central bank sees it rising to 70-75% in May, before easing to about 36% by the end of the year.
"We maintain our view that a meaningful disinflation seems unlikely unless the Central Bank of Turkey brings the policy rate to a level in line with price stability," Citigroup wrote in a research note.
In the poll, Türkiye's economy is expected to grow 2.8% this year, according to the median of 37 economists. The government had forecast growth of 4% this year.
The poll's median growth forecast was 3.5% for 2025 and 4% for 2026, compared to the government's forecasts of 4.5% and 5% respectively.
Türkiye's current account deficit in 2024 is expected to be 3.0% of gross domestic product, the median forecast showed, compared to a government forecast of 3.1%.
The deficit was seen at 2.4% in 2025 and 2.5% in 2026, the poll showed, compared to government predictions published in September of 2.6% and 2.3%, respectively.