Economists predict Turkey’s central bank to leave benchmark rate unchanged - Anadolu

The Central Bank of Turkey (CBRT) is expected to keep interest rates steady at 24 percent on Wednesday in its fourth Monetary Policy Committee (MPC) meeting this year, state-run Anadolu Agency said

Among 20 economists surveyed by Anadolu, four economists expect a decline in one-week repo rate, varying between 0.50 percentage points and 1.50 percentage points, the agency said. 

Meanwhile, fourteen economists in a Reuters poll on Monday predicted that the central bank will not change its one-week repo rate on Wednesday, while one economist predicted that it will lower the rate to 23.5% and another estimated that it will be cut to 23.25%.

Haluk Bürümçekçi, of Bürümcekçi Consulting, predicted a 75 basis point due to lira’s recent gains against the dollar, an expected sharp decline in inflation in coming months, and expectations of rate cut from the U.S. Federal Reserve, Reuters said. 

“When all these developments come together, I would think the Turkish central bank would start rate cuts as of June,” Reuters quoted Bürümçekçi as saying. 

In Reuters poll, five economists expected rate cuts in July, three in September, two in October and one each in January 2020 and March 2020.

The Turkish lira has lost almost 10 percent of its value this year, adding to a decline of 28 percent in 2018. Some investors have begun calling on the central bank to raise the benchmark rate from 24 percent, arguing that Turkey’s foreign currency reserves have dropped to dangerously low levels.

The bank this year temporarily suspended lending at its benchmark interest rate twice to bolster the lira. 

Last May, the central bank pledged to lend only at the one-week repo rate, leaving other lending and borrowing rates at 1.5 percentage points above and below the benchmark, respectively.

The bank raised interest rates by 625 basis points to 24 percent in September to prevent provoking a full-blown financial crisis, as Turkish lira hit record lows following a diplomatic row between Ankara and Washington over the almost two year detention of an American pastor.

The tensions between two NATO allies have escalated for the last couple of months over Ankara’s decision to buy Russian S-400 missile systems. On Thursday, the Pentagon sent a letter to Turkish Defence Minister Hulusi Akar detailing how Turkey’s participation in the F-35 program will be all but suspended as of July 31, unless Turkey withdraws from its planned purchase of Russian S-400 defence systems. 

Ankara also risks U.S. sanctions that can be imposed under the Countering America's Adversaries Through Sanctions Act (CAATSA), if it goes ahead with plans to acquire Russian systems. 

Meanwhile, the Turkish Treasury borrowed some 7.4 billion Turkish liras ($1.3 billion) from domestic markets in two auctions, an official statement on Monday said.