Citigroup has warned that Turkey’s central bank may need to deliver an additional interest rate increase and revise its inflation outlook as policymakers head into a closely watched rate decision on Wednesday, the Dünya news website reported on Tuesday, citing a note by Citi economists.
The note said pressure on the Turkish lira had increased because of tensions in the Middle East and that risks to the inflation outlook remained in place. Citi said the Turkish central bank may need to take extra steps to support confidence in its policy framework.
According to Citi economists, given the risk that inflation may remain higher for longer, a complementary rate hike, together with faster depreciation, may be needed to reinforce credibility. Citi also said attention was turning to the central bank’s next inflation forecast, expected in May, for signs of whether policymakers would revise their outlook.
The rate call is due on Wednesday, when the central bank’s Monetary Policy Committee is scheduled to meet for its third policy decision of the year. Surveys cited by Turkish media show most economists expect the bank to leave its benchmark rate unchanged at 37 percent, even as debate has grown over whether officials should tighten further to align the policy rate with tighter effective funding conditions.
Citi’s assessment points to concern over both borrowing costs and exchange rate policy. The central bank has allowed the lira to weaken at a pace slower than inflation, a policy that leads to real appreciation of the currency and can erode price competitiveness for exporters and the tourism sector.
Still, Citi does not expect a major shift in the overall policy framework. According to Dünya, the bank said Turkish authorities do not appear to believe the lira has yet created a clear competitive disadvantage for tourism and exports.
That suggests the central bank is more likely to make limited adjustments than adopt a new strategy. The note comes as Turkey faces market pressure tied to regional tensions and lingering inflation risks, complicating policymakers’ effort to restore confidence after years of unorthodox economic policy.