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Barclays sees Turkey policy rate at 36% by year-end

REUTERS/Cagla Gurdogan
A logo of Turkey's Central Bank is pictured at the entrance of its headquarters in Ankara on October 15, 2021

Barclays has reiterated its forecast that Turkey’s central bank would raise its interest rates to 36 percent by the end of the year after President Tayyip Erdoğan won the presidential elections on Sunday.

“There is a need for adjustments to both rates and FX,” Barclays analyst Ercan Erguzel said in a note to clients, adding that relatively light pressure from external financing needs provided policy makers with an opportunity to make this adjustment gradually.

“We see the policy rate at 36 percent at the end of 2023, but the risks are clearly to the downside,” Erguzel added.

In May, Turkey’s central bank kept its policy rate at 8.5 percent, holding steady for a third straight month.

“It has become even more important to keep financial conditions supportive to preserve the growth momentum in industrial production and the positive trend in employment,” the bank said after its monthly policy meeting.

Economists expect annual inflation, which declined to 43.7 percent in April from a peak of 85.5 percent last year, to rise again in the coming months. But they believe the central bank will keep rates on hold this month in line with Erdoğan’s unorthodox policies that call for low rates.