WOOD Flash – Turkey macro: CBT hikes, with a pledge to revive orthodoxy
Yesterday (22 June), new Governor Erkan hiked the policy rate by 650bps, to 15.00%, signalling the start of a gradual tightening cycle and a reversal of the unorthodox policies introduced under outgoing Governor Kavcioglu. The magnitude of the hike fell short of the 20.00% sought by the consensus, but was broadly in line with our expectations. With the signalled shift, the next few months will see a gradually paced tightening cycle, towards 30% by the year-end, in our view, which is likely to have a negative bearing on next year’s growth and will maintain a firm depreciation bias for the Lira as the policy apparatus is reconfigured. Turkey has, previously, remained on and off with market-friendly policies, under President Erdogan, so a relapse mid-way remains a key risk at a time when global activity is wilting. Looking ahead, we expect the policy rate to be raised to 30% by the last quarter of this year and remain flat in 2024E.
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