Turkish Central Bank to keep rates unchanged

The Turkish Central Bank (CBRT) is not expected to raise interest rates at Thursday's monetary policy meeting, with economists saying an increase in interest rates would come as a surprise.

Last month the bank kept the policy rate constant at 17% in line with market expectations, adding that additional monetary tightening would be delivered if needed.

"I expect the CBRT to keep all rates unchanged at the upcoming monetary policy meeting, consistent with its forward guidance at the last meeting," Phoenix Kalen, emerging markets strategy director at Paris-based Societe Generale, said on Wednesday.

He said he does not expect any movement on policy rates until the third quarter of this year, when concrete improvements in realized inflation and progress in inflation expectations create a space for policy easing.

"We currently project 100 basis points (bp) of rate cuts in the third quarter of 2021 and an additional 100 bp of cuts in the fourth quarter."

With similar views, Alvaro Ortiz Vidal-Abarca, the chief economist for Turkey at Spanish-based BBVA bank, predicted the bank will put changes on hold for now but they should remain "very vigilant and ready to act."

"The growth momentum is very positive and prompting upward pressure for the output gap, and food prices remain tense," he said.

On the other hand, he added, the exchange rate is appreciating due to "higher credibility" and this balance could put inflationary pressure on imports.

"So far the CBRT could be 'Wait and See' but maintaining a clear guidance to fight inflation and ready to act if necessary."

According to Cristian Maggio, head of emerging markets strategy at Canadian-based TD Securities, inflation has been rising faster than expected, but it is unlikely the bank will tighten rates again.

"I think they will hold at 17%. But I think the hold will be accompanied by the stated resolve to hike further if needed."

Turkey posted a 14.97% annual rise in consumer prices in January.

The Turkish Central Bank has said it will maintain its tight monetary stance until its 5% inflation target is achieved by 2023.

The bank expects year-end inflation rate to hit 9.4% in 2021 and 7% next year, before stabilizing at around 5% in the medium term.