What do FFIs think?

Sometimes you need to take an outsider’s perspective on the matters given the fact that we usually tend to convince ourselves of how successful we actually are or how unlucky we are. In situations like these, it’s better to find out what others think about us.

As the time approaches where CBRT has to deliver its decision, we can see people relentlessly comment bombing. According to an economy channel, some of the foreign-capitalized banks in Turkey expect a rate cut by 175 – 300 bps for the reasons of the recent decline in inflation and calm on the foreign exchange market. If you ask me, this is a quite a large range indeed, which means they are not so certain after all.

According to some bank analysts, inflation will show a sharper decline than expected, thus obliging CBRT to cut rates by 175 basis points. They claim that September Inflation data, which is due to be released on October, will pave the way for a stronger rate cut, maybe another cut by 100-125 bps. The expectation is that CBRT will cut rates twice in a month by 250-300 bps.

“One-time cut or two consecutive cuts…”

On the other hand, another group think that Turkish Central Bank aims for a real interest rate of maximum 2-3 bps; accordingly, it might lower the policy interest rate by 250 bps to 17.25 percent. I must say that I’m in complete agreement with those who are convinced that such a cut would not bring any negative impacts on market. However, we shall err on the side of caution to avoid the negative consequences of a sudden rise in inflation.

Some ‘bolder’ FFIs declare their expectations for a policy rate cut by 300 bps for the reasons of higher than expected decline in inflation and calm on the foreign exchange. Their expectation doesn’t seem like a remote possibility either. It may be wise to avoid being stingy when it comes to cutting rates as there is every likelihood that interest rates will rise again.

According to the results of a survey conducted by the same television channel with 22 foreign financial institutions, average expectations indicate a rate cut by 275 bps. Apparently, no one wants a rate cut higher than 400 bps. My expectation is that CBRT will cut rates by 250-300 bps. Obviously, I would prefer consecutive cuts rather than a one-time thing but as everything changes so swiftly in Turkey, even in one month, we need this cut as urgently as possible.