Analysts expect interest rate cut by the end of this year

ISTANBUL

Analysts at some international banks are now expecting the Turkish Central Bank to deliver a rate cut in November after the bank altered its guidance.

In a statement accompanying its rate decision, the bank said on Sept. 19 that “monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen.”

In previous statements released after the rate decisions the bank emphasized that “monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen.”

This alteration in guidance has led analysts to believe that the bank, which kept the policy rate unchanged at 50 percent for a sixth straight month last week, will deliver a rate cut.

Hande Küçük, an economist at Morgan Stanley, is one of them. “It increased the chances of an earlier cut,” Küçük said.

Analysts at Goldman Sachs are now expecting a rate cut in November. They argue that the slowdown in domestic demand will reduce the inflation momentum sufficiently in September and October, allowing the Central Bank to make a rate cut of 100 basis points in November.

Analysts at Citi also believe the bank will wait until November to deliver a rate cut.

İlker Domaç, an analyst at Citi, expects the bank to reduce the policy rate to 45 percent by the end of the year.

Meanwhile, in order to support macro-financial stability and the monetary transmission mechanism, the Central Bank took additional steps.

Reserve requirement ratios for Turkish Lira deposits and the ratio for lira-denominated required reserves that should be maintained for foreign currency (FX) deposits were changed.

The reserve ratio for short-term deposits was raised from a previous 12 percent to 15 percent.

The ratio for long-term deposits was increased from 8 percent to 10 percent, while the maintenance of lira for FX deposits was reduced from a previous 8 percent to 5 percent.