What will the CBRT's interest rate decision be? What are the forecasts of global giants?

The interest rate decision to be announced by the Central Bank of the Republic of Turkey on Thursday, June 11, is being closely followed by the markets. Ahead of this critical meeting, the expectations of leading global banks and financial circles are divided.

In its latest report, Morgan Stanley pointed to the weakening in domestic demand and persistently high inflation, forecasting that the Central Bank will keep the policy rate unchanged at 37%. The report stated that despite the rise in energy prices and market volatility, the CBRT will maintain its tight monetary policy. Morgan Stanley also shared a forecast that a controlled interest rate cut process could come to the agenda later in the year, and that the policy rate could decline to 27.5% by 2027.

Furthermore, in its strategy regarding the Turkish Lira, Morgan Stanley highlighted a three-month Dollar/TL short position, indicating that the expected depreciation in the TL could be controlled and occur below the levels seen in forward markets.

Another global bank, Goldman Sachs, assessed that the Central Bank will not make any interest rate changes at this week's meeting. In a report published last week, Goldman Sachs analysts stated, "We currently believe that only significant dollarization pressure would prompt the Central Bank to increase the policy rate." The bank noted that macroprudential steps limiting credit growth would be preferred for financial tightening.

A similar expectation prevails at Bank of America (BofA). While BofA expects the policy rate to be kept constant in the current situation, it also drew attention to the ongoing pressures on core inflation. The bank emphasized that "although there is no strong evidence of second-round effects of the energy shock or price distortions, inflation continues to remain at a high level and expectations are well above the CBRT's forecasts." BofA also stated that the CBRT could keep the effective funding cost around 40% and that pressure on reserves continues due to both inflation and geopolitical developments.

Küçük, one of the BofA economists, underlines that raising the interest rate to 40% is another option on the table.

On the other hand, Garanti BBVA analysts and some international organizations are pointing to the possibility of an interest rate hike. Analysts, particularly highlighting geopolitical tensions in West Asia, predict that the policy rate could be increased from 37% to 40%. JPMorgan and Capital Economics are also among the institutions expecting a 300 basis point interest rate hike from the CBRT.

While volatility and uncertainty continue in the markets until the interest rate decision is announced, the step the Central Bank will take carries great importance for international investors and domestic markets.

News Source: 12punto