What steps could Turkey’s Central Bank take after decision to cut interest rates by 200 points?

Despite the inflation approaching 20 percent, the CBRT, whose main task written in the law is to ensure price stability and whose official inflation target is at the level of 5 percent, has gone to a total of 300 basis points of interest rate cuts in the last month.

The question is “What will happen now?” What messages does the CBRT’s text on the interest rate decision give for the future, will interest rate cuts continue, and will loan interest rates also fall?

ANOTHER 100 BASIS POINTS DISCOUNT MAY COME

An economist said his own expectation was 50 basis points and the highest expectation in the market was a discount of  100 basis points but  the decision turned to be out 200 basis points. He added that the political nature of the issue made it impossible to make a rational analysis and forecast for the future.

He drew attention to the expression “there was a limited scope for a downward correction in the policy rate until the end of the year” in the decision text by the CBRT and added a total of additional 100 basis points interest rate cut could come in November and December meetings.

‘LOAN INTEREST RATES CANNOT BE STRETCHED TOO MUCH’

The same economist said “Again, with reference to the same sentence, following the cuts in November, short-term interest rates will remain fixed at the level of 15.0 percent and dollar / TL rate would find balance around 9.50.

He went on to say, “Credit cost of the real sector will not decrease much, depending on rising inflation expectations to effect long-term interest, exchange rates and rising risk premium.”

He also said, “It is worth remembering that both exchange rates and long-term interest rates and risk premiums may continue to move upward.”

‘THE DOLLAR WILL SEE DOUBLE DIGITS BY THE END OF THE YEAR’

Another expert in the same area said he expected the interest rate to be reduced by at least another 100 basis points to 15 percent by the end of the year. He went on to say he expected double-digit levels to be seen in dollar / TL by the end of the year at the latest, and that he did not expect a serious decrease in loan interest rates despite the decrease in CBRT interest and there might be a maximum decrease of 100 basis points.

He also noted that inflation would not fall far below the current levels of close to 20 percent, and the expectation of a “decrease in the base effect at the end of the year” was also lagging behind.

Experts comment that he expectation of a decline in inflation in the coming period shows that the desire and tendency to reduce interest rates will continue. This in turn, indicates that the course will continue similarly, after the Central Bank’s gradually decreasing firmness after March is loosened much faster in September.