Turkey’s Central Bank Tells Investors Tightening Cycle Is Near End
(Bloomberg) — Turkey’s central bank told investors at a meeting in New York that interest rates are close to the levels required for establishing a disinflation course and that its tightening cycle will be completed as soon as possible, according to a person with direct knowledge of the discussions.
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The central bank said on Thursday it has observed a significant improvement in inflation expectations and a decline in underlying trends as of September, the person said, asking not to be named because the meetings were closed to the press.
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Central Bank Governor Hafize Gaye Erkan told investors that the policies were working but “our job will not be over” until price stability is achieved, according to the person. She also discussed the bank’s efforts to accumulate reserves and increase the share of lira deposits in the banking system.
The central bank declined to comment.
The statements come from an investor meeting at JPMorgan Chase & Co.’s headquarters in New York as Turkey’s most senior economic officials seek to persuade investors to return to Turkish assets following a policy overhaul by President Recep Tayyip Erdogan after his reelection in May. Governor Erkan and Deputy Governor Cevdet Akcay addressed investors in person, while Finance Minister Mehmet Simsek spoke via an online session.
Investors have cited concerns including high costs of hedging currency risk and whether the economic team’s policies would be sustained as factors preventing further allocation to Turkish assets. JPMorgan on Thursday said in a report that investors should either wait for Turkish yields to rise or for inflation to fall before considering investing in lira bonds.
Erkan, the governor, has previously argued that investors should buy local bonds on grounds that both inflation and monetary policy will likely be more “moderate” toward the end of this year.
Inflation accelerated to 65% in annual terms last month and the central bank sees it climbing further in the months ahead. The bank’s projection is for deceleration to begin in the second half of 2024.
Turkey has the highest local-currency yields among major developing nations, according to the Bloomberg Emerging Markets Local Currency Government Index, which tracks 18 countries including China, Brazil, Mexico and South Africa. The central bank under Erkan has lifted its benchmark interest rate to 42.5% from 8.5% since she was appointed last year.
Prior to news from the meeting on Thursday, investors surveyed by Bloomberg expected the central bank to deliver another interest-rate hike this month and to reach a terminal rate of 45%.
–With assistance from Ugur Yilmaz and Kerim Karakaya.
(Updates with more details of the meeting starting in third paragraph.)
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