Turkey may cut rates at first sign of economic slowdown
Turkey may reduce interest rates at the first signs of an economic slowdown following presidential and parliamentary elections this month, news portal T24 reported, citing comments from JPMorgan.
The proof of such a scenario lies in the ongoing complaints of top government officials about high interest rates, T24’s Baris Soydan said. Local elections next March will also influence decision-making, JPMorgan said, Soydan reported.
It is the first time since the ruling Justice and Development Party came to power that a rally in Turkish assets may not occur following the party’s anticipated win in the polls, Soydan said.
Rate hikes by the central bank – totaling 425 basis points since May to 17.75 percent – may be followed by rate cuts after the June 24 election, according to Capital Economics, Soydan said.
Turkey’s lira slumped to a record low of 4.92 per dollar last month, forcing the central bank into the rate hikes to stave off a currency crisis. President Recep Tayyip Erdogan said earlier in May that he would lower interest rates and take more control of monetary policy after the presidential and parliamentary elections, unnerving investors already concerned about an overheating economy.
Economic growth accelerated to 7.4 percent in the first quarter from 7.3 percent in the three months to December, the government statistics agency said this week. Inflation in Turkey is 12.2 percent, higher than almost every emerging market peer. The current account deficit totals 6.5 percent of GDP, also high by emerging-market standards.