Goldman Sachs economists reiterated their assessment that conditions are not yet mature enough for the Central Bank of the Republic of Turkey (CBRT) to begin an interest rate cutting cycle.
In a note published on October 7 by Clemens Grafe and Başak Edizgil, it was stated that no change in the policy rate is expected at the Monetary Policy Committee (MPC) meeting to be held on October 22. However, the economists pointed out that the risks regarding this forecast are high.
The assessment emphasized that market pricing points to expectations of an interest rate cut at the October meeting, which diverges from Goldman Sachs' base scenario. The report stated that after a limited decline, household inflation expectations have begun to rise again, and that the expectations of market participants remain above the levels seen before the Iran war.
According to Goldman Sachs, the acceleration of reserve losses following an actual 300 basis point interest rate cut also indicates that caution should be exercised regarding monetary policy easing. The economists noted that in the outlook drawn by the CBRT in its Inflation Report, the underlying trend of inflation has only just begun to return to its path from before the energy price shock.
The report also stated that market pricing indicates, on one hand, that an easing cycle could begin, and on the other, that this process could be short-lived. The assessment also included that depreciation pressure on the Turkish lira for the upcoming period is being priced in offshore markets.
Touching upon the stance of foreign investors in the bond market, Goldman Sachs reported that although interest rate cuts are priced into the yield curve, non-resident investors have not significantly increased their bond positions.
News Source: 12punto
