Economy in Turkey: Markets to follow “Interest Rate Decision” of Central bank next week
Next week, global markets will closely follow the interest rate decision of the European Central Bank (ECB) and the U.S. GDP data abroad, while domestically, attention will be on the Central Bank of the Republic of Turkey’s (CBRT) interest rate decision.
Global markets concluded the past week with a mixed performance as they monitored a busy agenda of economic data. The focus is now shifting to the ECB’s interest rate decision and the upcoming GDP figures in the U.S.
The “dovish” pricing, which strengthened starting in March worldwide and was expected to lead to interest rate cuts by major central banks, continues to lose momentum each day. Concerns are rising that significant central banks may start interest rate cuts later than market predictions.
While last week saw a mix of central bank officials’ guidance, a dense macroeconomic calendar, and increasing geopolitical risks in the Middle East, technology indices showed positive divergence on expectations of increased demand for chips used in artificial intelligence.
FED EXPECTATIONS
Since the beginning of the year, predictions that the U.S. Federal Reserve (Fed) would initiate an interest rate cut cycle in March have continued to weaken. This is attributed to the strong economic performance indicated by the data released in the country and the Fed officials’ guidance that it is still early for the mentioned interest rate cut.
In statements made by Fed officials throughout the week, the dominant message was that it is too early for an interest rate cut in March. Additionally, the Fed’s report published last week noted that economic activity in the country showed “very little” change since November.
Analysts, noting that the data released in the U.S. since the beginning of the year supports inflation, emphasized that this suggests the Fed will not be hasty in implementing interest rate cuts.
Furthermore, international credit rating agency Fitch Ratings mentioned that central banks turning towards interest rate cuts in 2024 will be geographically widespread but not aggressive.
With these developments, in the money markets, expectations of the Fed starting interest rate cuts in March decreased to 47 percent, and interest rate cut pricing has declined by about 30 basis points since the end of last week.
DOMESTIC FOCUS ON CBRT
In the domestic market, the BIST 100 index, which experienced volatile movements last week, closed the week with a 0.13 percent increase at 7,996.70 points. The focus of investors has now shifted to the interest rate decision that the Central Bank of the Republic of Turkey (CBRT) will announce during the Monetary Policy Committee (MPC) meeting next week.
Economists participating in AA Finans’ expectation survey predict that the CBRT will increase the policy rate (one-week repo auction interest rate) by 250 basis points, raising it to 45 percent.
In addition, last week, following the upgrade of Turkey’s credit rating outlook by the international credit rating agency Moody’s, the credit rating outlooks of 17 Turkish banks were also revised from “stable” to “positive.”
The Banking Regulation and Supervision Agency (BDDK) announced that banks and financial leasing, factoring, savings finance, and asset management companies will transition to inflation accounting as of January 1, 2025.
The USD/TRY ended the week at 30.2009, slightly above the previous closing of 0.3 percent.
Analysts suggest that from a technical standpoint, 8,000 and 8,100 levels may serve as resistance for the BIST 100 index, while 7,900 and 7,800 points could act as support.
In the domestic data agenda for the coming week, consumer confidence index on Tuesday, real sector confidence index on Thursday, capacity utilization, and the CBRT’s interest rate decision will be highlighted.
