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POLL-Turkish cenbank to hold rates after July inflation jump

Credit: REUTERS/UMIT BEKTAS

Turkey's central bank is expected to keep its policy rate at 19% next week and wait until the fourth quarter to begin smaller than previously anticipated cuts, after inflation jumped to a two-year high, a Reuters poll showed on Friday.

ISTANBUL, Aug 6 (Reuters) - Turkey's central bank is expected to keep its policy rate at 19% next week and wait until the fourth quarter to begin smaller than previously anticipated cuts, after inflation jumped to a two-year high, a Reuters poll showed on Friday.

With many citing food prices as a driver of inflation concerns, all 18 poll participants predicted the central bank would keep interest rates steady at its policy committee meeting next Thursday.

However, interest rate expectations beyond that have been complicated by President Tayyip Erdogan's comments in an interview on Wednesday that: "It is not possible for inflation to go up further. We will start to see a fall in interest rates too."

Turkish annual inflation hit a fresh two-year high of 18.95% in July, just below the central bank's policy interest rate level, increasing pressure on the bank to keep policy tight.

The data led economists to predict smaller than previously forecasted rate cuts by the end of year. According to the 15 poll respondents who gave end-2021 forecasts, the median estimate for the end-year interest rate rose to 18% from 17.5% in the previous poll. Forecasts ranged between 17% and 19%.

In July, the central bank raised its year-end inflation forecast to 14.1% from 12.2%, with Governor Sahap Kavcioglu promising to maintain decisively a tight stance until a lasting fall in inflation is achieved.

"The July outturn and price developments to date support our view that the inflation outlook is more challenging than envisioned by the central bank's latest forecast trajectory," Citi said in a note to clients.

"Subdued prospects for capital inflows, an elevated risk premium and dollarization suggest to us that there is no room for policy slippages going forward... we believe that there is a strong rationale for erring on the side of caution, which may require a more restrictive policy stance."

The independence of the central bank has been a main concern for investors in recent years, given that Erdogan, a self-described "enemy" of interest rates, has repeatedly called for low interest rates and returned to the issue this week.

"He (Erdogan) is clearly putting some pressure on for the meeting. I don't know if it will be enough for it to happen next week, but the market is reconciled to cuts coming before the end of the year," said Aberdeen Standard Investments' Kieran Curtis.

In the poll, 13 respondents said they expected a rate cut in the fourth quarter while four respondents said they expect no rate cuts this year.

The central bank will announce its policy decision on August 14 at 1100 GMT.

reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=TRINTQP poll data

(Additional reporting by Marc Jones in London Writing by Ezgi Erkoyun Editing by Daren Butler)

((ezgi.erkoyun@thomsonreuters.com; +90-212-350 7051; Reuters Messaging: ezgi.erkoyun.thomsonreuters.com@reuters.net;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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