Turkish central bank seen to halt easing after currency fall

Reuters / Istanbul

Thursday، 13 January 2022 09:48 PM

Turkey’s central bank is expected to hold its policy rate steady at 14% next week, a Reuters poll showed on Thursday, halting an easing cycle that sparked a currency crisis late last year and sent inflation soaring to a 19-year high of 36%.
The central bank slashed its policy rate by 500 basis points since September to 14%.
All but one of 16 economists in the Reuters poll predicted the bank would halt easing on Thursday of next week, keeping its one-week repo rate unchanged.
One economist predicted a 50 basis-point cut to 13.5%.
Several regular poll participants declined to give forecasts citing the unpredictability of policy decisions.
Based on eight predictions, the poll’s median rate at year-end was 14.00%, with estimates ranging from 9.00% to 14.75%.
With real yields in deeply negative territory, the unorthodox rate cuts precipitated the decline of the Turkish lira, which lost 44% of its value against the dollar last year.
The central bank said last month it would monitor the impact of recent easing in the first quarter of 2022, which economists took as a signal it would hold in January. The sharp lira depreciation stoked inflation via imports, which shot up in December as Turks scrambled to buy goods with prices soaring.
That in turn boosted other costs including labour, with minimum wage hiked to 50% for 2022.
The lira’s selloff touched 18.4 to the dollar last month, but partially reversed due to a series of costly state measures including interventions in the currency market.
President Recep Tayyip Erdogan announced a scheme to encourage savers to convert foreign exchange deposits, compensating depositors for any losses due to lira weakness.
Government officials have promised to bring inflation down quickly.
Analysts believe it could exceed 50% in coming months and remain elevated through the year.
“In our view, none of the measures introduced so far address the key problem facing the Turkish economy — the very high level of inflation,” Goldman Sachs said in a note this week.

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