Goldman Sachs, in its assessment of Turkey’s interest rate trajectory following recent appointments, stated that the policy rate could be raised to as high as 40 percent. In a report published on Friday, the bank used the phrase, “Completely orthodox decision-makers could raise interest rates to 40 percent in Turkey.”
JPMorgan, an American bank, had previously noted that the CBRT (Central Bank of the Republic of Turkey) could increase the policy rate to 25 percent at its monetary policy meeting on June 22. Societe Generale also predicted in its new analysis that the policy rate in Turkey would be raised to 15 percent.
Goldman Sachs interpreted the appointments of Mehmet Şimşek as Minister of Treasury and Finance and Gaye Erkan as the Central Bank Governor as indications that the need for changes in monetary and fiscal policies was recognized within the new government.
According to a report on Bloomberg HT, Goldman Sachs updated its forecasts for the Turkish economy in the report published on Friday. The report also stated that a “significant and periodic adjustment in the exchange rate” was necessary to stabilize the economy.
Goldman Sachs emphasized that there is currently no guiding text regarding the central bank’s future steps, highlighting that a “completely orthodox decision-maker” would allow for a “front-loaded” adjustment in the exchange rate, followed by the policy rate (repo rate) returning to a determining level.
In a note sent to the bank’s clients, Clemens Grafe stated, “In our view, this situation indicates that an orthodox decision-maker would raise interest rates to the current deposit interest level of 40 percent.” Grafe also mentioned that when expectations for the USD/TRY exchange rate and inflation stabilize, interest rates could be rapidly reduced and likely lowered to 25 percent by the end of the year.