POLL-Turkish cenbank to hold rates after July inflation hike

ISTANBUL, August 6 (Reuters)Turkey’s central bank is expected to keep its policy rate at 19% next week and wait until the fourth quarter to begin lower-than-expected cuts after inflation peaked in two years, a Reuters poll found on Friday.

With many citing food prices as a worrying factor for inflation, the 18 survey participants predicted that the central bank would keep interest rates stable at its policy committee meeting next Thursday.

However, interest rate expectations beyond were complicated by President Tayyip Erdogan’s comments in an interview on Wednesday: “It is not possible for inflation to rise any further. We will also start to see a drop in rates. of interest. ”

Turkish annual inflation hit a new two-year high of 18.95% in July, just below the central bank’s key interest rate level, increasing pressure on the bank to keep its policy tight.

The data led economists to forecast lower-than-expected rate cuts by the end of the year. According to the 15 respondents who gave forecasts at the end of 2021, the median estimate of the end-of-year interest rate rose to 18% from 17.5% in the previous poll. The forecasts ranged from 17% to 19%.

In July, the central bank raised its year-end inflation forecast to 14.1% from 12.2%, with Governor Sahap Kavcioglu promising to maintain a firm stance until a sustained drop in l inflation is reached.

“The July result and price developments to date confirm our view that the outlook for inflation is more difficult than envisioned by the central bank’s latest forecast path,” Citi said in a note to clients.

“A moderate outlook for capital inflows, a high risk premium and dollarization suggest to us that there is no room for political slippage in the future … restrictive political stance.”

Central bank independence has been a major concern for investors in recent years, as Erdogan, a self-proclaimed interest rate “enemy”, has repeatedly called for low interest rates and is returned to the question this week.

“He (Erdogan) is clearly exerting some pressure for the meeting. I don’t know if that will be enough to make this happen next week, but the market is reconciled with the cuts coming before the end of the year,” he said. said Aberdeen. Kieran Curtis of Standard Investments.

In the poll, 13 respondents said they expected a rate cut in the fourth quarter, while four respondents said they did not expect any rate cuts this year.

The central bank will announce its policy decision on August 14 at 11:00 GMT.

Reuters: // realtime / verb = Open / url = cpurl: //apps.cp./Apps/cb-polls? RIC = TRINTQP survey data

(Additional report by Marc Jones in London Writing by Ezgi Erkoyun Editing by Daren Butler)

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