Türkiye’s year-end interest rate could hit 45%: Goldman Sachs, Citi predict

Goldman Sachs and Citi anticipate no changes in Türkiye’s interest rates until November, with a potential year-end policy rate of 45% amid ongoing inflation risks.

Türkiye’s inflation outlook

Despite recent downward surprises in inflation for June and July, risks remain elevated. The Central Bank of the Republic of Türkiye (CBRT) forecasts inflation to drop to 36% by the end of the year but acknowledges the upward risks.

Current projections: The CBRT has not altered its year-end inflation targets for 2024, 2025, and 2026, projecting 38%, 14%, and 9%, respectively. By the end of 2024, inflation is expected to drop to 36%, although upward risks remain significant. The bank is committed to a tight monetary policy until price stability is achieved.

Goldman Sachs perspective on price pressures

• Risk assessment: Economists Basak Edizgil and Clemens Grafe note that while inflation has shown unexpected decreases recently, the overall risks remain skewed upwards.
• Monetary policy: Economists expect a significant tightening in monetary policy as Türkiye navigates inflation challenges.
• Price pressures: The slowing economic activity and improved household inflation expectations could lead to a sharp deceleration in price pressures for the rest of the year.

Citi’s forecast no change in interest rate

• No immediate rate changes: Analysts Gultekin Isiklar and Ilker Domac from Citi predict that the CBRT will keep interest rates unchanged until November, aligning with their expectation of a year-end policy rate of 45%.
• Future disinflation: Citi highlights the CBRT’s anticipation of significant disinflation in 2025, reinforcing the bank’s tight monetary stance.

CBRT’s stance on strict monetary policies

• Steady projections: CBRT Governor Fatih Karahan confirmed the bank’s unchanged year-end inflation forecasts for 2024 through 2026, emphasizing the continuation of strict monetary policies to ensure price stability.