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JPM on CBRT

TURKEY
  • The Turkish policy mix remains unsustainable and will eventually either lead to a policy reversal or to an economic downturn.
  • Analysts think that it is reasonable to expect that policymakers will choose to avoid an economic downturn and will therefore sharply increase interest rates to address the CA deficit funding issues and stabilize the exchange rate.
  • JPM pencils in a hike to 25% that would bring the policy rate to positive territory in 2H23 – analysts previously expected a hike to 18%.
  • Such a move could happen either as a shift to orthodox policies or as another attempt to muddle through.
  • In either case, with a significant interest rate hike Turkey might be able to attract enough inflows to fund its CA deficit.
  • The external funding might be transitory (in case of an attempt to muddle through) or sustained in case of a shift to orthodoxy.
  • However, if interest rates remain deeply negative in real terms, funding issues could destabilize the economy.
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