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The Turkish central bank is widely expected to raise rates at its upcoming meeting, according to analysts at Rabobank.

Key Quotes

“Admittedly, tightening while the economy is facing a potentially sharp slowdown has its risks, but as Piotr Matys, our EM strategist,  argues, the bank has good reasons to hike nonetheless. First of all, inflation is well above the CBRT’s target – partially fuelled by the recent depreciation of the lira.”

“Moreover, the currency has recently gained some support from market expectations of a rate hike. Should the CBRT not meet these expectations, it could put renewed pressure on the currency, which would further add to the prevailing inflationary environment.”

“With many investors and analysts expecting a rate hike, the crucial question is by how much the central bank will raise rates. As Piotr notes, considering the decline in the lira, one could argue for a rate hike to the tune of 1,000bp. However,  considering the political resistance against higher interest rates, Piotr considers 500bp to be a more realistic scenario. This is slightly on the hawkish side compared to the median estimate, but with analyst forecasts ranging from no hike to 725bp, the decision is bound to surprise at least some market participants.”

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