Barclays Dissents With Big Banks, Calls Smaller Turkey Rate Hike
(Bloomberg) — Economists at Barclays Plc have emerged as an outlier among major banks, resisting an upgrade to their forecast of Turkey’s next interest-rate hike following President Recep Tayyip Erdogan’s seeming endorsement of more conventional policies.
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Ahead of the central bank’s policy meeting next week, the British bank said it expects an increase of 250 basis points, or half the size projected by the likes of JPMorgan Chase & Co. and Morgan Stanley.
Although not ruling out a far sharper move, Barclays analysts said they anticipate “gradual hikes,” following a bigger-than-expected increase in August that brought the benchmark one-week repo rate to 25% from 17.5%.
“The Turkish central bank would prefer to continue its tightening cycle in a more gradual fashion to limit its effect on banks, corporates and households,” they said. “Additionally, macroprudential tightening continues at a full speed and the central bank probably thinks that it reduces the need to deliver a bigger hike.”
Read more: Turkey Circles the Wagons to Appease Market Doubting Erdogan
Before August, Governor Hafize Gaye Erkan was underwhelming the market with a monetary tightening cycle she’d initially described as “gradual” despite price growth that’s now running at nearly 60%. The government sees year-end inflation at 65%.
Expectations among traders and analysts have begun to shift, however, after the supersized hike and Erdogan’s remarks last week in support of monetary tightening. Most analysts surveyed by Bloomberg now see the central bank raising the key rate to 30% on Sept. 21.
Barclays continues to forecast Turkey’s benchmark at 35% by the end of this year and at 40% at end-2024.
After Erdogan’s reelection in May, the president installed Erkan, a former Wall Street banker, alongside a line-up of other market-friendly decision makers to run Turkey’s $900 billion economy. Before the pivot, years of ultra-loose monetary policy contributed to an inflation crisis and prompted an exodus of foreign investors.
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