Economy in Turkey: February inflation shakes the market, U.S. banks revise interest rate expectations
The unexpected surge in February inflation rattled the market. While Turkish lira assets experienced depreciation, risk premiums and bond yields rose. Three U.S. banks provided new forecasts regarding the Central Bank of the Republic of Turkey’s (CBRT) interest rate policy.
U.S. investment bank JPMorgan expects the CBRT to further raise its policy rate by 500 basis points to 50% in April, following the February consumer inflation exceeding expectations.
JPMorgan had previously anticipated that the CBRT would end its rate hike cycle with the increase in the policy rate to 45%.
In February, the Consumer Price Index (CPI) increased by 67.07% annually, surpassing the expectation of 65.74%. On a monthly basis, the CPI rose by 4.53% in February. The expectation in the Reuters survey was 3.70%.
In its research note, JPMorgan stated, “Headline inflation in February significantly exceeded our expectation of 4.2% monthly and the market expectation of 3.8%.”
While keeping its year-end policy rate forecast at 45%, JPMorgan indicated that the CBRT could lower the interest rate in November and December.
GOLDMAN SACHS: INCREASED RISK OF RATE HIKE
Another U.S. bank, Goldman Sachs, evaluated today’s inflation data.
Goldman Sachs analysts stated, “Given the higher-than-expected inflation and continued capital outflows since the end of December, today’s figures increase the risk of the CBRT raising interest rates further.” However, they also emphasized that before considering further tightening of policy, the CBRT would likely want to see if capital flows normalize after the elections and observe improved payment balance seasonality from March onwards.
