Even truer – Hans Christian Wietorska, Middle East and Eastern Europe research manager at Deutsche Bank, said he expects Turkey’s inflation rate to fall to 40 percent by the end of the year.
Witska responded to questions about changes in Turkey’s macroeconomic policies, inflation and interest rate forecasts.
Witska said the central bank’s 500 basis point hike in policy rates before the regional elections was a “strong message and a game changer,” adding, “You could say there has been a U-turn after this move. Domestic and foreign investors were expecting the lira to devalue, but the central bank raised rates. “With this rate hike, the president has made it clear that a further sharp depreciation of the currency is not part of his strategy,” he said.
He explained that while central banks face some challenges, they have the necessary frameworks to overcome these issues.
“Inflation has peaked.”
Witowska noted that inflation has peaked and continued:
“The first phase has been successfully completed in terms of balancing the economy. Now the second phase has begun. Inflation has peaked and is coming down and we expect a strong deleveraging process. We expect inflation to fall to 40% by the end of the year.” Now, the real question mark will be whether to bring inflation down to 20% in the second phase. “Moreover, growth is also slowing and the central bank’s response when growth slows will also be important.”
Risk of recession
Witska said the right time to cut rates would be when growth slows and inflation falls.
“We expect 500 basis points of rate cuts in November and December this year, with this base case and easing likely to continue into early next year.
It won’t be easy, but no country in the world with 75% inflation has ever brought down its inflation rate without going into recession. If Turkiye can balance its economy without going into recession, it will be a unique example, and we are very optimistic that Turkey will be successful in this. But there can’t be any half-hearted policy mistakes.
We are still at the beginning of the journey, but in the past eight weeks, $8.5 billion (in Turkish lira-denominated bonds) has flowed in. “This figure could reach up to $20 billion by the end of the year.”
“The dollar finds 37 liras”
Witska said his dollar/TL forecast for the end of the year is $37 and that he expects the real value of the TL to rise.
Deutsche Bank economists expect Turkey’s economy to grow 3.5 percent this year. (AA)
