Goldman Sachs' interest rate commentary for 'CBRT': What will it drop to by year-end?

US investment bank Goldman Sachs, following the Central Bank of the Republic of Turkey's (CBRT) Monetary Policy Committee (MPC) meeting yesterday where the policy rate was raised by 250 basis points to 45 percent in line with expectations, has predicted that the CBRT will lower the interest rate to 25 percent by the end of 2024.

"CONSISTENT WITH OUR VIEW"

In an investor note, Goldman Sachs stated, "The bank indicated that the current policy rate level will be maintained until a significant decline in the underlying trend of monthly inflation is observed and inflation expectations converge with the range projected by the CBRT. This is consistent with our view; as we believe the CBRT could begin easing monetary policy starting from the 3rd quarter, when we expect sequential inflation to begin falling sharply again following the dissipation of pass-through effects from wage hikes and the removal of energy subsidies."

Stating that they project year-end inflation in 2024 to be at 30 percent, well below the consensus of 42.6 percent, under the assumption that the current policy stance is maintained and the money supply growth rate continues at its current sequential pace, Goldman Sachs assessed, "With inflation falling faster than what the markets are pricing in, we believe that, contrary to current market pricing, starting the easing cycle in the middle of the year would not be premature."

"We do not believe that easing policy in the second half of 2024 will create excessive pressure on the Turkish Lira, and we expect the CBRT to lower interest rates to 25 percent by the end of 2024," Goldman Sachs added, noting that the CBRT would re-evaluate its monetary policy stance should a persistent and significant risk to inflation emerge.

News Source: 12punto