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Turkey to keep rates steady at 45 percent as tightening cycle ends: Reuters poll

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Turkey’s central bank is expected to keep its key interest rate steady at 45 percent next week, after a 250 basis-point hike last month, marking the end of its aggressive tightening cycle, a Reuters poll showed on Friday.

The monetary policy committee meeting on February 22 comes after Fatih Karahan was appointed central bank governor on February 3 after the resignation of Hafize Gaye Erkan, who cited a need to protect her family from what she called a media smear campaign.

All 11 economists surveyed by Reuters agreed that the policy rate will be kept steady this month.

Since June, after President Recep Tayyip Erdoğan prevailed in May elections and initiated a U-turn in economic policy, the central bank has lifted its key rate by 3,650 basis points.

After its latest hike, the bank said it had achieved the policy setting needed to establish disinflation and that this rate level will be maintained until there is a significant decline in the underlying trend of monthly inflation.

Presenting the quarterly inflation report last week, Karahan said the bank will maintain a tight policy stance until inflation drops to target, keeping a year-end inflation forecast of 36 percent despite expectations it might need to rise.

He said another rate hike was not currently needed but that it was too early to talk about easing, dampening expectations of a quick easing cycle and reinforcing analysts’ views that he will remain hawkish until inflation begins to cool around mid-year.

According to the median forecast of the Reuters poll, the policy rate is expected to be 37.5 percent at end-2024. Only one of the 10 institutions who responded to this query expected the policy rate to remain at 45 percent at the end of the year, with the estimates in a 35-45 percent range.

Turkey’s inflation rate climbed to an annual 64.9 percent last month, having risen 6.7 percent on a monthly basis on the back of some big one-off annual price rises and a 49 percent minimum wage increase. Market forecasts for end-year inflation are between 40and 45 percent.

Karahan, previously deputy governor and a former Federal Reserve Bank of New York economist, is the fifth governor Erdogan has named in as many years. As deputy, he played a key role designing the tightening cycle.

The bank will announce its rate decision at 1100 GMT on February 22.

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