Turkey's Central Bank poised for significant policy rate hike: Experts

Industry experts and foreign economists say they are are gearing up for a substantial interest rate hike in Turkey, with predictions hovering between a 500 and 600 basis points increase ahead of its the Monetary Policy Committee meeting of Central Bank on Thursday, as the country grapples with revitalized inflation trends.

Marek Drimal, the Societe Generale Chief Strategist for Central and Eastern Europe, Middle East, and Africa (CEEMEA), underscored the possibility of a significant surge in the policy rate this September. Contrasting with the market's existing 30% expectation, Drimal anticipates the rate might leap to 31%, constituting a 600 basis points increase. This expectation takes into consideration the resurgence of inflation in recent months and President Tayyip Erdogan's endorsement of monetary policy steps to battle the ongoing inflation issue.

"A more significant interest rate hike cannot be ignored," Drimal cautioned in a statement to AA reporters. He added that this scenario seems more likely compared to a smaller increase. "We expect further tightening in the coming months, with a projection of a 600 basis points increase in the fourth quarter," Drimal elaborated.

Timothy Ash, the Senior Emerging Markets Strategist at Bluebay Asset Management, mirrored Drimal's sentiments but is leaning towards a 500 basis points hike in the policy rate. Economists participating in an expectation survey conducted by AA Finance are also anticipating a 500 basis points increase, elevating the one-week repo auction interest rate (policy rate) to 30%. It is important to note that in the last month's meeting, the policy rate was boosted by 750 basis points, raising it from 17.5% to 25%.

As Turkey's central bank steers its course to dampen the primary trend of inflation, the upcoming meeting is expected to underline the continuation of a tight monetary policy.