Morgan Stanley, Barclays in Doubt Over Turkish Rates Staying Put

(Bloomberg) -- Economists at Morgan Stanley and Barclays Plc are having second thoughts about Turkish interest rates remaining on hold through the rest of the year after a faster-than-forecast start to disinflation.

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The first slowdown in price growth in eight months has taken the most hawkish forecasters by surprise with a deceleration that was more abrupt than anyone had anticipated. Though it hasn’t prompted an outright revision of calls quite yet, Barclays economist Ercan Erguzel said the central bank may make its first move in the fourth quarter instead of January.

Turkey’s Inflation Cools Faster Than Expected in Turnaround

It’s a view echoed by Morgan Stanley, who’d similarly penciled in a rate cut at the start of next year. The US bank’s economist Hande Kucuk marked down her 2024 inflation estimate by a full percentage point to 42.4% and said she now sees “downside risks to our forecast for unchanged rates this year.”

Global banks have until now been split over the likely timing of the first rate cut, with a slight majority of respondents in a Bloomberg survey expecting the first move down from 50% before the end of 2024. Data on Wednesday showed Turkey’s inflation slowed below 72% in June from a peak of over 75% the previous month.

With the outlook now in influx, central bank Governor Fatih Karahan downplayed the likelihood of rate cuts any time soon. In comments to Reuters published on Thursday, he said “it is not healthy to draw conclusions from a single data point in this period of high volatility.”

Reiterating his previous hawkish guidance, Karahan said “we will maintain tightness and wait for data and expectations to get in line with our disinflation path. We think we still have some way to go in this regard.”

The central bank in June left rates unchanged for a third straight month, warning policy will be restrictive “until a significant and sustained decline in the underlying trend” of monthly inflation.

While the monthly gauge was at 1.6% in June, the lowest in over a year, Morgan Stanley pointed to “still-high services inflation” and said “administered price hikes continue to keep upside risks alive.”

--With assistance from Kerim Karakaya and Beril Akman.

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