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JPMorgan Expects Turkey to Reduce Interest Rate Cuts
JP Morgan expects the Turkish central bank to reduce its planned interest rate cuts, starting with just 200 basis points next week, after inflation last month reached a higher-than-expected level, driven by rising food and service prices, the bank said in a research note on Wednesday, September 3.
Turkey's inflation rate reached nearly 33% year-on-year and more than 2% month-on-month last month, following the announcement of better-than-expected second-quarter economic growth on Monday.
JP Morgan stated that it currently sees risks to its year-end inflation forecast of 29.5% in Turkey, citing rising food prices and increased domestic demand, unlike in the past.
The bank's forecast includes an increase in Turkish inflation to 31.8% year-on-year in September, citing several factors, including the re-pricing of back-to-school services.
The bank stated in its note that the Turkish Central Bank "is likely to keep interest rates well above consumer price inflation to prevent Turks from shifting to the dollar, especially in light of the recent political turmoil."
The Turkish Central Bank will hold its next monetary policy meeting on Thursday, September 11, and J.P. Morgan currently expects a 200 basis point rate cut, compared to its previous forecast of 300 basis points.
The bank's forecast also includes further two percentage point cuts during the central bank's October and December meetings, which would bring the interest rate to 37% by the end of the year, slightly higher than J.P. Morgan's previous forecast of 36%.
