US bank's take on CBRT interest rate decision: 'We believe it has moved into a quite restrictive territory'

The Central Bank of the Republic of Turkey (CBRT) increased its monetary policy rate by 500 basis points to 50 percent yesterday. The US bank, Bank of America (BofA), evaluated the Central Bank's rate hike decision.

In its assessment of the CBRT's decision yesterday, BofA stated that it does not seem very likely that the bank will implement further rate hikes for the remainder of the year and announced that they expect the policy rate to be cut by 250 basis points by the end of the year.

"IN A RESTRICTIVE STATE"

While evaluating the CBRT's interest rate decision and messages from yesterday, BofA also announced its expectations regarding the policy the bank will follow. Noting that the CBRT's decision to set the policy rate at 500 basis points and the overnight borrowing/lending rates at 300 basis points below and above this rate, respectively, brought the effective rate hike to 650 basis points, Bank of America stated that the monetary policy stance has now become very restrictive.

BofA stated, "Considering not only the policy rate but also the regulatory steps taken recently, we believe that the CBRT has now moved its policy stance into a quite restrictive territory."

YEAR-END INFLATION FORECAST

Assessing that "given the high level of tightness in the policy stance, we see it as a very low probability that the CBRT will go for further rate hikes," BofA added, "They left the door open for further hikes in their statements; however, we expect the monthly inflation trend to slow down starting from the second quarter as the impact of wage increases, price adjustments, and election campaign spending diminishes. We see inflation at 42 percent at the end of the year and believe they could lower the policy rate to 47.5 percent with a 250 basis point cut by the end of the year."