Turkish Cbank may keep rates stable: Economists

ANKARA

All eyes are on the Turkish Central Bank before its first monetary policy meeting of 2021, with economists saying the bank will probably keep interest rates unchanged.

"I think the bank could maintain on hold interest rates,” said Alvaro Ortiz Vidal-Abarca, chief economist for Turkey at Spanish-based BBVA bank, but added that it would be “monitoring very closely the evolution of prices and be ready to tighten if necessary."

Recent decisions have favored the appreciation of the lira, he said, while core prices moderated in January.

"However, food and energy prices signal that pressure will continue in the short term," he stressed.

William Jackson, London-based Capital Economics' chief emerging markets economist, also projected the bank's one-week repo rate will be left at 17% throughout 2021.

"It will, of course, take time to bring inflation down on a sustained basis. Even so, improved macro stability will reduce Turkey’s country risk premium and support a further rally in the lira," he argued.

Piotr Matys, a strategist at Dutch-based Rabobank, echoed these predictions, saying the most likely scenario is that the bank keeps the policy rate stable on Thursday.

"However, a modest rate hike cannot be completely excluded," he added.

Sharing similar views, Phoenix Kalen, emerging markets strategy director at Paris-based Societe Generale, said the bank is likely to face a choice between keeping policy rates unchanged or raising rates modestly.

"We anticipate that the Central Bank will increase the benchmark one-week repo rate by 50 basis points to bring it to 17.5%."

Cristian Maggio, head of emerging markets strategy at Canadian-based TD Securities, said: “As the bank is approaching the end of tightening, I think there is still some margin for higher rates. I think the bank may lift the repo rate by 100 bps to 18% next week.”

In December, the bank’s hike in its benchmark interest rate from 15% to 17% was hailed by markets, seen as showing its determination to fight inflation.

The bank's latest steps to return to orthodoxy in Turkish lira value management have boosted foreign economists’ faith in the Central Bank’s credibility.

In December, Turkey saw a 14.6% annual hike in consumer prices, according to the country’s statistical authority.

The government’s year-end inflation target for 2020 was 10.5% as laid out in the new economic program announced in September 2020.

The Turkish Central Bank has set a medium-term inflation target of 5%.