WOOD Flash – Turkey macro: refining projections

Turkey went through a less pronounced drop in 2Q than both we and the consensus expected, as the country benefitted from favourably-positioned credit apparatus, which ensured a liquidity provision when it was needed the most. The COVID-19 infection rates have increased recently in the region, and it appears to us that the complications from the pandemic will continue to disrupt work and family life for far longer than we expected initially, including a slower-than-expected recovery in tourism, which would imply a softer rebound next year.
The CBT has raised the effective borrowing rate by more than 300bps since mid-July, which has started to be reflected in credit moderation. In our view, the bank is likely to keep the rates unchanged at its upcoming meeting on 24 September and for the remainder of the year, while continuing to favour backdoor measures to raise borrowing costs. However, the bank is likely to run out of space and would have to resort to an outright rate hike in the first quarter of next year.