While JPMorgan reiterated its expectation that the CBRT would raise interest rates to 25 percent, it predicted a recession. JPMorgan economists repeated their expectation on June 6 that the CBRT would raise the policy rate to 25 percent at the Monetary Policy Committee meeting to be held on June 22.
Economists predicted that in this first MPC, which will be attended by the new Chairman of the CBRT, Hafize Gaye Erkan, the interest rate will be increased by 1650 points from 8.50 percent to 25 percent.
In the report published by JPMorgan economist Nicolaie Alexandru-Chirescius, “Although there are upside risks, we maintain our year-end policy rate forecast at 30 percent. We anticipate a recession in the second half of 2023 with the tightening of credits,” he said.
What were the expectations of other foreign institutions?
SOCIETE GENERAL
France-based Societe Generale pointed out the possibility of the new economic administration to return to rational policies, and pointed out that the depreciation of the TL may accelerate in the early period.
In addition, Societe Generale, which also expressed its positive views on the future of the TL towards the end of the year, estimated that the Turkish Lira could gain value “gradually” in the coming months and reach the level of 21.50 at the end of the year.
The Bank also shared its expectations regarding the CBRT’s interest rate decision. In the report, it was stated that the economy under Şimşek’s management is expected to increase interest rates by 650 basis points at the first meeting and raise the interest rates to 15 percent.
MORGAN STANLEY
In its report, Morgan Stanley emphasized that the appointment of Mehmet Şimşek to the Ministry of Treasury and Finance is a sign of a return to traditional monetary policy. However, the bank stated that it expects a depreciation in TL and a tightening in financial conditions after the elections. The bank’s year-end dollar/TL forecast stands at 28.
In the report, it was stated that after Şimşek’s appointment to the Ministry of Treasury and Finance and the expected changes in the CBRT management, normalization in the policy rate is expected. In the report, which is thought to be a gradual normalization, it is predicted that the policy rate will increase from 8.5% to 20% in the meeting on June 22, and that it may increase to 25% in August.
BARCLAYS
UK-based investment bank Barclays confirmed its forecast that the CBRT will raise the policy rate to 36 percent by the end of the year, after Turkish President Tayyip Erdogan won the second round of the elections. Barclays analyst Ercan Ergüzel, in a note to customers, stated that “There is a need for regulations on both interest rates and exchange rates” and stated that the light pressure created by the need for external financing will provide the authorities with the opportunity to make these regulations gradually. Ergüzel also commented, “We estimate that the policy rate will be 36 percent by the end of 2023, but the risks are still clearly on the downside.”
GOLDMAN SACHS
US investment bank Goldman Sachs increased its dollar/TL forecast from 22 to 28 for 12 months after President Recep Tayyip Erdogan’s cabinet was renewed.
“We believe that the election of Mehmet Şimşek as the new Treasury and Finance Minister increases the likelihood of monetary policy shifting in a more orthodox direction,” Goldman Sachs said in a note.
The bank predicted that the dollar/TL could reach the levels of 23, 25 and 28 after 3, 6 and 12 months, respectively.
Analysts stated that depending on the developments, the level of 28 could be realized in less than a year. Likewise, it was stated that a larger-than-expected interest rate hike could lead to a less-than-anticipated depreciation of the Turkish Lira.
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