Economy in Turkey – Goldman’s Interest Rate Analysis: Inflation Expectation at 70%

Goldman Sachs has indicated that there are upward risks in the final interest rate forecast following the Central Bank’s (CB) 500 basis point interest rate hike. The bank analysts assert that interest rate hikes need to continue and also anticipate year-end inflation to be at 70%.

The CB’s Monetary Policy Committee had raised the one-week repo rate from 25% to 30% with a 500 basis point increase.

The CB statement had mentioned the evaluation that a decrease in the monthly inflation trend had begun. The statement also noted, “Monetary tightening will be gradually strengthened as and when necessary until a significant improvement in the inflation outlook is achieved.”

With consumer inflation approaching 60% and expected to remain high for the rest of the year, the CB increased the dosage of tightening measures and carried out a 750 basis point interest rate hike last month. With this latest increase under the leadership of Hafize Gaye Erkan, the CB has now raised interest rates by a total of 2,150 basis points.

GOLDMAN ANALYSIS

In an assessment published by the US-based multinational investment bank Goldman Sachs following the CB’s 500 basis point interest rate increase, following was mentioned; “There are upward risks to our 40% final interest rate forecast. We expect inflation to be at 70% by the end of the year.”

The report, authored by the bank’s economists highlighted that the CB’s one-week repo rate had become “a more important tool in targeting inflation.”

Goldman expects the CB to continue making “concrete interest rate increases” for the remainder of the year.