Interest rate and inflation forecast from Türkiye İş Bankası

Türkiye İş Bankası CEO Hakan Aran made statements on the occasion of the bank's 100th anniversary.

Evaluating the Turkish economy, Aran stated that they do not expect a loosening in credit growth limits during the tightening phase yet and that banks can manage this process, before announcing his interest rate forecast for the end of 2024.

'IT COULD BE LOWERED TO 45 PERCENT BY YEAR-END'

Hakan Aran said the following regarding when the interest rate cut cycle will begin:

"I believe the Central Bank will not take action at the October Monetary Policy Committee meeting, but will only signal that it may begin interest rate cuts in the following period through verbal and written guidance. With it becoming clearly visible that annual inflation and the inflation trend will permanently shape up below the policy rate level, I am of the opinion that an opportunity for interest rate cuts of 250 basis points will arise starting from November, and that the policy rate could be lowered to 45 percent by the end of this year and to 25 percent by the end of next year.

'INFLATION COULD FALL TO 20 PERCENT BY THE END OF 2025'

When combined with factors such as bringing inflation under control in Turkey, the functioning of the system, and the easing of the burden on the real sector, this allows us to look to 2026 with hope. We also project that inflation could fall to around 20 percent by the end of 2025. This is important for us in terms of achieving many balances. This journey is supported by the Medium-Term Program (OVP) and fiscal policy. I think Turkey has no choice but to succeed in this."

'IF MONTHLY INFLATION IS 1 PERCENT, HOUSEHOLDS WILL FEEL CONFIDENCE'

İş Bankası CEO Aran also addressed the gap between the inflation felt by households and market expectations, stating that households will only feel confidence when the base effect is removed and monthly inflation drops to the 1 percent level. Therefore, he said, for household expectations to converge with market expectations, monthly inflation must truly fall to the 1 percent level, or even below 1 percent.

Aran expressed the view that this will not be felt in September due to reasons such as the opening of schools, hikes in school bus fees, and education expenses, but that there will be a convergence starting from October.

Sharing his 2024 expectations for the economy, Aran stated that they project Turkey's growth rate to be 3.5 percent, the current account deficit to be 30 billion dollars, the unemployment rate to be in the 9-10 percent range, and for the Turkish Lira to close the year with a real-term appreciation.