Jan 10 2019

Turkey rate cuts won't happen until after elections - JPMorgan

U.S. investment bank JPMorgan expects Turkey’s central bank to reduce interest rates in the second quarter, after local elections on March 31, Dünya newspaper said on Thursday.

The central bank will probably reduce its benchmark rate of 24 percent by one percentage point and follow that up with cuts totalling 2.5 percentage points in the third quarter and 3 percentage points in the final three months, bringing the year-end level to 17.5 percent, JPMorgan said, according to Dünya.

Some investors are concerned that the Turkish central bank will lower interest rates ahead of the elections, moving in line with government policy designed to boost economic growth. Such an early reduction could re-ignite financial instability, they say. Turkey hiked rates by 625 basis points in September to stop a currency crisis from causing irreparable damage to the economy, but inflation is now slowing from a 15-year high of 25.2 percent, making a cut more likely.

JPMorgan’s global head of research Joyce Chang said actions by the U.S. Federal Reserve this year will have a big impact on the decisions of central banks across emerging markets. JPMorgan currently sees 19 of 24 developing-market economies raising rates in 2019, but those increases could lessen should the Fed keep its own rate hikes at minimal levels, she said, Dünya reported.

Nigeria, India, China and Turkey are expected to lower rates, while Malaysia is likely to keep its interest rates on hold, JPMorgan said.

Should a Turkish rate cut be on the cards, it would more likely occur at the central bank’s monetary policy meeting on March 6, Inan Demir, an economist at Nomura, said last week. The bank’s next scheduled meeting is on Jan. 16.