How did foreigners evaluate the CBRT’s rate hike?

ESER GULMEZ-ZEYNEP BAYAR

The 650 basis point rate hike by the Central Bank of the Republic of Turkey (CBRT) attracted attention abroad as well as in the country.

Speaking to Bloomberg, foreign analysts evaluated the decision to increase the policy rate from 8.50 percent to 15 percent:

InTouch capital/matys: Analysts expect under disappointed with the announced interest rate decision

London-based InTouch Capital Markets Senior Currency Analyst Piotr Matys, who was a guest of Bloomberg HT, evaluated the effect on the markets of the CBRT’s rate decision to 15 percent:

“I thought the CBRT could raise the interest rate to at least 20 percent. I was expecting even more. However, it seems that analysts who think like me were disappointed with the rate decision announced below expectations. The announced interest rate seems to make it difficult for CBRT Chairman Hafize Gaye Erkan to rebuild the shattered confidence in the markets. We are currently seeing the negative effects of the decision on the markets and TL.

Today’s meeting was so important that it was the first step taken by the CBRT to allocate the broken confidence of foreign investors. Restoring that trust does indeed seem difficult. Foreign investors will remain cautious against TL assets. We see that the exchange rate has indeed reached a challenging level for Turkish citizens. Because inflationary pressures will continue and it looks like it will be here for a long time.”

Tellimer Dubai/Malik: Erdogan’s non-intervention in the bank will be enough for foreign investors

Tellimer Strategist Hasnain Malik used the following statements in his speech in which he stated that the CBRT took slower than expected steps in the transition to orthodox monetary policy:

“Turkey is doing what it says about the transition to orthodox monetary policy, but it is progressing much more slowly than some expect. Long-term investors will not give up on Turkey due to a gradual correction. The consistency of the CBRT and President Erdogan’s non-intervention in the bank will be enough for them.”

Medley Global/Stadtmiller: I doubt that the CBRT will raise interest rates above 20-25 percent

Medley Global Advisors Product Manager Nick Stadtmiller stated that the increase decision taken today is in line with the Treasury and Finance Minister Mehmet Şimşek’s commitment to gradually transition to orthodox policies. Stadtmiller said in his assessment:

“Although the size of the Turkish Republic Central Bank’s rate hike was disappointing for the market, it was a decision close to my 14% estimation. It can be said that the increase decision taken today is in line with the commitment of the Minister of Treasury and Finance, Mehmet Şimşek, to gradually adopt orthodox policies.

I expect the increases to continue in the upcoming MPC meetings, but I doubt that the CBRT will raise the policy rate above the 20-25 percent level. In the statement made by the Central Bank today, it was stated that tightening will be made when and to the extent necessary to ensure a significant improvement in the inflation outlook, and the commitment to reach the official target of 5 percent inflation has been reaffirmed. The size of the rate hike required to meet these targets will likely cause a deep recession, and I doubt policymakers are willing to pay the price.

In the statement of the CBRT, it was stated that the bank would support strategic investments to support the current account balance. I interpreted this as a commitment to continue policies that promote lending to priority sectors. This will not be easy to implement as lending conditions are tightened across the economy.”

Neuberger Berman/Nazlı: We expect tightening to continue in the coming months

Neuberger Berman Asset Management Ireland Ltd., Senior Economist and Portfolio Manager Kaan Nazlı evaluated the CBRT’s decision to increase interest rates with the following words:

“The rate hike was within market expectations but below average expectations. It seems that the Board preferred to be more cautious and decide the next step by taking into account the projections in the inflation report to be published in July. When we look at the global examples in the past, it should be admitted that a step of 650 basis points is a tightening at the level that we saw in the periods when very serious shocks were experienced in the capital markets.

The most important change for us is that the board stated that it will continue to tighten monetary policy until a significant improvement is achieved in the inflation outlook. The gradual simplification of the micro and macro prudential framework is also a positive development. We expect the inflation targets to be updated in the July report, along with the continuation of the tightening in the coming months.”