Turkey: Foreign economists expect cut in interest rates

ANKARA

Foreign economists on Wednesday projected the Turkish Central Bank would end the year with 150 -200 basis points cut in its main policy rate.

The Monetary Policy Committee (MPC) will hold a meeting on Thursday for the eighth and last time this year to determine the bank's decision on interest rates.

"We expect a 200 basis points (bsp) reduction in the repo rate to 12% at Thursday's meeting," said Nigel Rendell, the director of Medley Global Advisors, adding there might be a scope of rate cut beyond 12% in the opening half of next year.

Piotr Matys, a strategist at Dutch-based Rabobank, predicted the Bank would end an eventful year with a 150 bps cut to 12.50% on Thursday.

"This would bring the total amount of easing to staggering 1150bps in 2019," he noted.

He stated that it would be prudent if the central bank delivered a rate cut which is relatively close to the median expectation of 150 bps.

He warned that a rate cut well above 200bps would leave the lira even more exposed and potentially vulnerable to speculative attacks.

Downward trend in inflation

Pointing out the downward trend in inflation, Turkish economists also told Anadolu Agency that the central bank could continue cutting interest rates.

The economists reminded that the policy rate was strongly reduced by 1000 bps in the Bank's July, September and October meetings and thus they expect the bank could reduce its policy interest rate of 200-250 basis points to 11.50 to 12%.

At the previous meeting, the policy rate, the one-week repo auction interest rate, was cut from 16.50 percent to 14 percent with a 250 basis point reduction.

The central bank will continue to cut interest rates at the December meeting, citing the possibility of inflation remaining below the revised end-year forecast of 12 percent, said finance analyst Haluk Burumcekci.

"The market expectation is at the level of 150-200 basis points and that the year can be completed with 12 percent policy rate," noted Spinn Consultant Co-Founder and economist Ozlem Derici Sengul.

"The Central Bank will follow a wait-and-see policy for the coming year. We will probably see a Central Bank that moves heavily in the first half of the year and sets strategies according to developments in the second half of the year," she added.