Turkish central bank seen holding off easing for longer: Reuters Poll

File photo of Turkey's Central Bank headquarters is seen in Ankara
FILE PHOTO: Turkey’s Central Bank headquarters is seen in Ankara, Turkey in this January 24, 2014 file photo. REUTERS/Umit Bektas/Files/File Photo

April 5, 2019

By Nevzat Devranoglu

ISTANBUL (Reuters) – Economists expect Turkey’s central bank to delay cutting rates until around July, and to ease policy less aggressively than previously thought, a Reuters poll showed on Friday after two weeks of volatility in the country’s financial markets.

The poll’s forecasts for the year-end policy rate ranged from 17.5 percent to 24 percent, with a median of 20.75 percent. The central bank has kept it at 24 percent since September when the Turkish economy was in the midst of a currency crisis the tipped it into recession.

Economists expected the bank to cut rates this year by a median total of 3.25 percentage points, down from a median of 5.00 percentage points in the previous Reuters poll done in late February. Respondents cited stubbornly high inflation, which remains around 20 percent.

The central bank has said it will keep monetary policy tight until inflation shows a convincing improvement. Food prices jumped earlier this year, boosting annual consumer price inflation, despite unorthodox government efforts to bring them down.

A sharp drop in the lira on March 22 set off a week of volatility ahead of local Turkish elections. It prompted the central bank to stop one-week repo auctions since March 25, effectively raising its funding rate by at least 1.5 percentage points, which was seen as a stop-gap tightening of policy.

Ten out of 11 economists in the Reuters poll predicted that the central bank would leave its repo rate unchanged at a policy meeting at the end of April, while one economist expected it to raise its rate to 25.5 percent to match average weighed cost of funding.

“We expect inflation to come down substantially in the second half of 2019 due to the combination of base effects and economic slowdown,” said Nora Neuteboom, economist at ABN Amro, adding that she expects the first rate cut by 1.25 percentage points, or 125 basis points, in July.

“We expect…a total easing of 500 (basis points) throughout the second half of 2019, albeit this is largely dependent on the market reaction to the first rate cut and the future inflation data,” Neuteboom said.

Asked about timing, three economists predicted the first rate cut would come in June while five pointed to July. One economist predicted September, another December, while one expected the central bank to leave rates unchanged throughout this year.

A previous poll showed most of the rate cut expectations focused on a June monetary policy meeting.

The central bank will announce its rate decision on April 25 at 2 p.m. (1100 GMT).

(Writing by Ezgi Erkoyun; Editing by Jonathan Spicer)

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