Turkey’s central bank is adopting a more patient stance on possible cuts to its benchmark interest rate, Japanese bank Mitsubishi UFJ Financial Group said.
The chances of an imminent rate cut at the central bank’s next monetary policy meeting in June are now negligible, Tokyo-based MUFG said on Monday, according to Reuters.
MUFG had forecast a reduction in interest rates in the second quarter after President Recep Tayyip Erdoğan replaced the central bank’s governor in March. The bank, under new governor Şahap Kavcıoğlu, who has sympathised with Erdoğan’s rate-cutting stance, is now likely to lower borrowing costs in the third quarter, MUFG said.
At its monthly meeting on interest rates last week, the central bank pledged to keep interest rates above inflation until strong indicators pointed to a permanent slowdown in price increases and a medium-term inflation goal of 5 percent was reached.
The central bank’s benchmark interest rate stands at 19 percent. Consumer price inflation accelerated to 17.1 percent last month from 16.2 percent in March.
Monetary policymakers are due to meet again on rates on June 17.
Former central bank governor Naci Ağbal hiked borrowing costs for banks from 10.25 percent during his four-month tenure, which ended abruptly in mid-March. He also pledged to tighten monetary policy further if required, a pledge Kavcıoğlu has failed to make specifically.
The Turkish lira has lost more than 10 percent of its value against the dollar since the central bank management change due to concern among investors about more dovish monetary policy and inflationary pressures.
Kavcıoğlu says he expects inflation to have peaked in April and to slow down markedly in the second half of the year. Some economists disagree, saying inflation may nudge higher in May.
The lira traded down 0.6 percent at 8.31 per dollar on Tuesday. It reached a record low of 8.58 per dollar in early November, just prior to Ağbal’s arrival.