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Goldman Sachs Say Return to Orthodoxy Continues to Be Gradual

TURKEY
  • The return to a more orthodox monetary framework continues to be a gradual one, Goldman Sachs say. While the CBRT has adapted a more pessimistic view of the underlying trend of inflation, Goldman Sachs expect the Bank's rate decisions to be largely independent of inflation developments in the near term and the policy rate to be hiked gradually to 25% by year-end.
  • They note the CBRT continues to tighten monetary conditions mostly via quantitative measures. In Goldman Sachs’ view, inflation at this level is largely a function of the money supply, which is under pressure from a range of factors such as the unwinding of macroprudential measures, the funding of the budget as well as sharply increased payments for FX-protected deposits.
  • Keeping inflation somewhat under control and avoiding renewed dollarisation flows will therefore require a significant sterilisation effort by the CBRT, they say, with Governor Erkan indicating that her preferred policy instrument to deal with inflationary pressures would be via rises in reserve requirements.
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