Deutsche Bank has published a report in which it shares its views on the Turkish economy. In the published report, it was stated that inflation will remain high and will continue to be the biggest challenge in the economy, and it was stated that there may be rapid increases in interest rates as the footsteps of the transition to a “rational” and “orthodox” economy are heard. The bank’s year-end inflation expectation is close to 50 percent.
“Inflation Will Continue to Be a Problem in Turkey, Year-End Expectation 50 Percent”
With the statements that “Mehmet Şimşek was appointed to the Ministry of Treasury and Finance and the appointment of Hafize Gaye Erkan as the CBRT President was welcomed by the markets”, the economists of the institution expressed their expectation that orthodox economic policies would be adopted.
Economists predict that inflation will continue to be the biggest challenge in the economy, and that headline inflation will be at the end of the year. They predicted it would approach 50 percent.. It was pointed out that the new administration should implement a more orthodox and aggressive monetary policy due to the effects such as the CBRT’s not changing the policy rate at the last meeting, inflationary pressures, low real interest levels and low reserves.
The report stated that the bank will increase interest rates in an aggressive but not excessive manner. At this point, it was stated that a rapid depreciation requires a large interest rate increase, while the need for the government to balance credit growth was emphasized. In the report, the prediction was shared that the policy rate could be increased to 25 percent in the first stage or that there could be consecutive interest rate increases in June and July.
In the second scenario, it was stated that the interest rate could be increased to the 18-20 percent range and then to 25 percent in July. It was stated that how the continuation of the increase in interest rates will be shaped will depend on the movement of the TL and portfolio flows, while the possibility of the interest rate to exceed 30 percent has not been excluded.
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