Prominent bank publishes interesting “interest rate scenario” for the post-election in Turkey

The US investment bank Morgan Stanley evaluated various scenarios related to the Turkish economy in the ”CEEMEA Economic Outlook” report. The bank stated in its analysis of Turkey that a return to orthodox policies was likely after the elections and that the central bank’s policy interest rate could be increased to 35 percent in 2023 in the event of this return.

The report stated that the base scenario for Turkey was to keep the 9 percent policy interest rate constant for a long time, but a return to orthodox policies was also possible after the elections.

It was stated that the return to Orthodox policy could provide a rebalancing in the economy and that the economy could enter a period of low inflation and high growth starting from 2024.

60 PERCENT INCREASE IN THE MINIMUM WAGE FORECAST

The report also predicted that there would be a 60 percent increase in the minimum wage at the beginning of the year. It was stated that with the continuation of exchange rate and price controls in 2023, inflation could fall to 53 percent at the end of the year.

Morgan Stanley predicted that the 12-month average inflation in Turkey would be 50.8 percent in 2023 and 49.6 percent in 2024. Market forecasts are for inflation to be 43 percent and 25.2 percent for 2023 and 2024, respectively.

THERE MAY BE A POST-ELECTION COMEBACK

However, the country’s return to orthodox economic policy is equally likely, the report said. Morgan Stanley’s report stated that the outlook would be shaped according to monetary policy and financial policy after the election.

“Our main scenario is for the policy interest rate to remain at 9 percent,” the report said in its forecast for policy rates. Also the statement “The second scenario is the return to orthodox monetary policy and the implementation of a full-fledged macro-stabilization program. In our second scenario, we expect the policy interest rate to rise to 35 percent in 2023” was used in the report.

However, it was stated that if there was no significant tightening in the monetary stance after the election, annual inflation could be at the level of 53 percent by the end of 2023.

THE BUDGET DEFICIT WILL INCREASE

Energy subsidies, the cost of the CCP and hikes in salaries and pensions of public sector employees ahead of the elections were predicted to lead to an increase in the budget deficit next year.

In the report, Turkey’s growth forecast in 2023 was estimated at 2.8 percent, and the forecast for 2024 was estimated at 2.4 percent.

SOURCE: sozcu.com.tr/2022/finans/morgan-stanleyden-secim-sonrasi-icin-dikkat-ceken-faiz-senaryosu-7482867/