Analysts anticipate a tighter monetary policy from the CBRT throughout the year, after a higher than expected rate hike Author Reuters

© Reuters.

ISTANBUL, March 19 (Reuters) – The Central Bank (CB) yesterday after increasing interest rates more than expected, some analysts expectations of Turkey’s recreational further revised in the direction it will follow a tight monetary policy.

While the CBRT lowered the policy rate to 19% with a 200-bp increase, which it defined as “front-loaded and strong” yesterday, the statement in the decision text that additional monetary tightening will be made if necessary was preserved. He also stated that he will maintain his tight monetary policy stance “resolutely for a long time”.

While the CBRT opened repo auctions at 19% interest rate using the quantity method, it also reflected the tightening on the swap markets where it provided TL against foreign exchange and gold, another funding area. TL interest rate in TL swap market increased from 17% to 19% today.

Analysts also state that the rate hike has passed another important credibility test by CBRT Chairman Naci Ağbal, who was appointed in November.

After this step, Goldman Sachs increased its year-end policy rate expectation from 17.5% to 18%, and predicted that there would be no cuts until the fourth quarter.

Commerzbank’s Tatha Ghose predicted a tighter monetary policy for this year, while he raised his year-end interest rate expectation from 15% to 17% and stated that they expect TL to gain some more.

In the note he wrote for Ghose customers “By increasing the interest rates more than expected, it was probably aimed to convey the message of how serious the inflation target is, regardless of political demands.” said.

The TL gained 2% value against the dollar following the PPK decision, and fell to 7.25 lira today, last seen at the beginning of March. Although the CBRT clearly states that “additional tightening” can be made, they anticipate that the 19% level will be the top of the year for the policy rate and that the cuts will start in the last quarter of the year.

By: Jonathan Spicer
Translated by: Halilcan Soran
Editorial: Nevzat Devranoğlu

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