Will the CBRT continue to raise interest rates? Forecasts from foreign banks

As the Central Bank of the Republic of Turkey (CBRT) interest rate decision is awaited with curiosity, foreign banks have lined up their interest rate forecasts one after another. For the CBRT policy rate decision to be announced on Thursday, HSBC expects a 250 basis point hike, while Morgan Stanley and Deutsche Bank expect 500 basis point hikes each.

DECISION TO BE ANNOUNCED ON OCTOBER 26

The Central Bank will meet on Thursday, October 26. The interest rate decision will be announced at 14:00 on the same day. At the meeting held last month, the interest rate was increased by 500 basis points, rising from 25 percent to 30 percent. Thus, the CBRT has raised interest rates by a total of 2,150 basis points in the last four meetings.

Foreign banks' forecasts regarding the interest rate decision are as follows:

DEUTSCHE BANK

Deutsche Bank economists Yiğit Onay and Christian Wietoska stated that they have updated their outlook on the CBRT's policy, expecting a 500 basis point hike in the October meeting and 250 basis point hikes each in November and December.

Increasing geopolitical risks and the potential effects of these risks on Turkey's inflation and balance of payments dynamics were influential in the forecasts. The economists maintained their view that the tightening cycle will end when the interest rate level reaches 40 percent, stating that this level will be reached by the end of the year.

MORGAN STANLEY

Expecting a 500 basis point interest rate hike on October 26 and a 250 basis point hike on November 23, the bank predicted that the CBRT would then hit the brakes. The bank estimated that the next interest rate hike would be at the 250 basis point level on April 25, 2024, reaching the 40 percent level. The bank also assessed, "Depending on the policy profile and in an environment where macroprudential measures keep financial market conditions relatively tight, we project that inflation will decline to 42.5% annually by the end of 2024."

HSBC

The UK-based international bank HSBC shared its interest rate forecasts regarding Turkey. In a note published under the signature of bank economist Melis Metiner, it was predicted that the CBRT would raise the policy rate by 250 basis points to 32.5 percent on October 26 and would not go for another interest rate hike in the final quarter. The bank's note also pointed out that policymakers in Turkey are calculating the real interest rate based on the CBRT's 33 percent inflation expectation for the end of 2024.