How will economic policy work in Turkey in 2024?

In 2023, the thesis that "interest rates are the cause, inflation is the result" was suspended following the elections.

Hafize Gaye Erkan was appointed to head the CBRT, and Mehmet Şimşek was appointed to lead the Ministry of Treasury and Finance.

So, how will 2024 progress? Here are the details...

QUANTITATIVE TIGHTENING ALONGSIDE MONETARY TIGHTENING

According to a report compiled by Bloomberg; the initial signals for 2024 indicate that a tight monetary policy will continue. The guidance provided by the CBRT in its recent interest rate decisions also points to this. While the CBRT has stated that its tightening steps will conclude soon, it has expressed that policy tightness will persist in 2024. While there is a moderate improvement in inflation expectations, it is a general expectation that the high course of inflation will continue in the first half of 2024. In this direction, the CBRT is also of the opinion that a peak in inflation at the 70 percent level will be recorded in May 2024. All of this supports the view that a tight stance in monetary policy will continue for a significant part of 2024.

Furthermore, quantitative tightening is expected to continue alongside monetary tightening. It is observed that there is a certain level of interest in the first TL deposit purchase auctions opened by the CBRT.

Looking at the course of monetary policy in 2024, the most important question mark is when the CBRT will carry out its first interest rate cut. There are differing views among market actors on this issue.

Morgan Stanley and Deutsche Bank AG expect the CBRT to end its tightening cycle with a 250 basis point interest rate hike in January, while Goldman Sachs analysts believe the cycle has been completed.

In a note they published, Deutsche Bank economists, including Yiğit Onay, stated, "Following the final interest rate hike in January, we expect interest rates to remain unchanged for a long time, and for gradual but continuous interest rate cuts to begin as of the fourth quarter of 2024."

Deutsche Bank analysts stated that there is a possibility of an early interest rate cut in the third quarter if inflation surprises on the downside.

MINIMUM WAGE INCREASE

Morgan Stanley economists, including Hande Küçük, referred to the statements made in the final Monetary Policy Committee (PPK) texts of the year and stated that they foresee a final interest rate level of 45 percent with one last hike of 250 basis points.

Goldman Sachs, on the other hand, believes that the CBRT has ended its interest rate hike cycle at 42.5 percent, provided there are no upside surprises in inflation and wage data.

Bank economists Başak Edizgil and Clemens Grafe wrote in a published note, "We expect interest rates to remain at their current levels until the third quarter of 2024. From that point on, we expect interest rates to be reduced to 25 percent by the end of the year."

The banks in question also drew attention to the expected minimum wage hike.

Taking into account the wage increase and the current fiscal policy path, Morgan Stanley expects inflation to fall to 42.3 percent by the end of 2024. Deutsche expects domestic demand to maintain its strength with next year's wage increases.

News Source: 12punto