Goldman Sachs expects Central Bank to keep rates on hold

ISTANBUL

Analysts at Goldman Sachs think the Turkish Central Bank will remain on hold at 50 percent on Dec. 26 against the consensus expectation of a small rate cut.

Most economists expect the Central Bank to start the easing cycle by delivering a 150 basis point rate cut this week.

The bank kept the key policy rate, the one-week repo rate, steady for eight months.

“Our call is mostly based on a normative analysis after the guidance from the bank has become necessarily less clearcut with the Central Bank having transitioned from a hawkish stance to a more data-dependent stance since the summer,” Goldman Sachs said.

“In our view, the bank’s main objective when setting monetary policy remains to build credibility and, in light of recent data releases, we think a December cut would be premature,” it added.

Goldman Sachs economists continue to expect the bank to start cutting rates cautiously from January onwards (by 100bps) and think risks remain skewed towards an even later start to the cutting cycle given the persistence in inflation, the recent pickup in activity and the risk of a higher-than-expected minimum wage increase in January.

“Even if the Central Bank cuts in December, we would expect a minimal impact on the Turkish Lira given the bank’s current exchange rate policy and the well-supported balance of payments,” they said.

Goldman Sachs economists expect the bank to further delay the cutting cycle if the size of the minimum wage hike is significantly above 30 percent and/or the pass-through to inflation is substantial.