Economists forecast Turkish interest rate cut by July

Economists do not expect an immediate interest rate cut from the monetary policy committee of Turkey's central bank on May 22

Economists do not expect an immediate interest rate cut from the monetary policy committee of Turkey's central bank on May 22

ISTANBUL - Economists expect the Central Bank of Turkey Monetary policy committee to leave interest rates unchanged in a meeting scheduled on May 22.

The authorities are keeping a close eye on interest rates as government officials have called for a cut in interest rates since the March 30 municipal elections. Indeed, interest rates had spiked due to political turmoil during the campaign but officials now claim that there is no more need for such a tight monetary policy. On January 28, the Central Bank more than doubled its borrowing rate from 3.5 percent to 8 percent, and raised the lending rate from 7.75 percent to 12 percent.

Economist Wolf-Fabian Hungerland from Berenberg Bank in Turkey said that he does not expect an interest rate cut following tomorrow’s committee meeting. Instead he forecasted cuts to begin in September.

Hungerland added that inflation is not sufficiently low for an interest rate cut as political tension in the country is expected to persist until the presidential election scheduled on August 10, 2014. An early cut in rates would be a mistake and misguide the markets, according to Hungerland.

Christian Maggio, chief economist of TD Securities Emerging Economies, also believes the committee will not decrease the rates before pressure on the Turkish Lira has eased. He is however more optimistic concerning the date of a possible interest rates cut, forecasting July.

Andy Birch economist from IHS Global Insight Turkey, Andy Birch, also echoed these sentiments saying the committee would not change the rates due to the risk of deterioration in markets' stability. It would however try to ensure liquidity by using other financial instruments than interest rates.

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