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Sep 10 2018

Moderate Turkish rate hike seen this week – central bank poll

The Turkish central bank’s weighted average cost of funding will be 21.7 percent at the end of the month, according to a latest survey, showing that economists and businessmen believe possible rate hike this week will be limited in scope.

The central bank raised average funding costs to 19.25 percent last month while keeping its benchmark rate of 17.75 percent unchanged. The bank can charge various rates of interest for borrowing, including its highest rate of 20.75 percent in the so-called late liquidity window, rendering the weighted average a critical measure of borrowing costs.

Economists and investors differ over whether the central bank will make big hikes to its benchmark interest rate at a meeting on Thursday after the lira extended losses against the dollar in August and September to about 40 percent.

Some investors say policymakers should put financial stability ahead of economic growth and hike the benchmark by 500 basis points or more to at least 22.75 percent. Many see a more moderate increase coupled with hikes to the late liquidity rate to compensate.

Average funding costs are expected to rise further to 22.5 percent in three months, before falling to 20.1 percent in 12 months time, the survey showed.

Expectations for year-end inflation in Turkey surged to 19.6 percent from 16.5 percent in the same survey in July. Inflation has climbed to 17.9 percent from just over 10 percent in January as the lira tumbled.

The survey showed year-end predictions for the lira at 6.59 per dollar compared with an estimate of 5.96 against the U.S. currency in July.

The current account deficit was seen at $49.7 billion by the end of 2018.

The survey is conducted on a monthly basis with a panel of 96 participants consisting of 75 experts from the financial sector, 13 from the real sector and eight professionals.