The Central Bank of Turkey is set to meet tomorrow for its interest rate decision. According to a Barclays research report, the Turkish central bank is expected to extend the monetary policy easing cycle and cut the interest rate by 50 basis points. The MPC statement of December continued to be dovish, and the central bank had recently underlined the moderate trend in core inflation indicators and moderate pressure from producer prices.
Economic sentiment, household consumption and manufacturing recovered in the fourth quarter of 2019 but the details of the PMIs caution a more mixed performance with future output falling in the last two months of the year while new export orders have stayed within range since August.
“We believe the policy mix is set to remain accommodative until stronger green shoots of firmer growth become apparent”, said Barclays.
Treasury Minister Al Bayrak recently announced future supportive measures including a 10pp reduction to VAT on furniture and lower interest rates on loans to farmers and small shopkeepers. CBT President Erdogan and his VP had recently underlined that inflation and interest rates will continue to drop in 2020, indicating towards lingering political pressure to extend the easing cycle.
“Although real policy rates have decelerated to a one-year low and are likely to become negative in Q1 20, we believe the central bank will consider this temporary, reaffirming its single-digit target of 8.2 percent by end-2020”, added Barclays.
