(Bloomberg) -- Wall Street banks are having to rewrite their forecasts for the timing of Turkey’s first interest-rate cut after higher-than-expected inflation prints in September.
Over the past day, a wave of analysts who anticipated the first cut as early as next month pushed their forecasts out to next year. Among them was JPMorgan Chase & Co., whose economists now see 250 basis-point cuts in each month from January through August, ultimately bringing borrowing costs down to 30% from the current 50%.
“We see risks for smaller rate cuts and pauses in case of significant inflationary pressures” from increases to the minimum wage and other administered price hikes, said JPMorgan economists including Fatih Akcelik. They revised their end-2024 inflation forecast by a full percentage point to 43.5%.
Goldman Sachs Group Inc. economists also moved their November call to January, while raising their year-end inflation forecast to 44% from 40%.
Annual inflation was 49.4% last month and monthly inflation, officials’ preferred indicator, saw an unexpected uptick to 2.97%, according to the data released on Thursday.
Central Bank Governor Fatih Karahan is scheduled to provide updated projections on his inflation outlook on Nov. 8, where he’ll alo provide more details on the direction of monetary policy. Karahan said on Thursday that policy would remain tight until price stability is achieved.
The central bank’s inflation target for year-end is 38%, with the upper end of the outlook at 42%. Rates have been on hold at 50% for the past six meetings.
“Rate cut pricing for November saw a harsh correction” with markets now shifting expectations to December, said Tufan Comert, emerging-market strategist at BBVA in London. Citing Karahan’s remarks, Comert said that even a December cut is now a “low possibility.”
What Bloomberg Economics Says...
“Risks to the inflation outlook are heavily tilted to the upside due to rising energy costs following the escalation in the Middle East war. A pick-up in the lira’s slide — down by nearly 5% against the dollar in the past three months — will add to inflationary pressures.”
— Selva Bahar Baziki, economist. Click here to read more.
Disappinting October data could lead the central bank to delay cutting to December or January, according to Barclays Plc economist Ercan Erguzel. Last month, Barclays economists had moved their expectation of a cut to November from January.
UBS Group AGG economist Gyorgy Kovacs similarly acknowledged the possibility of a delay to December or next year, but stuck to anticipating the first cut in November with a 250 basis-point reduction.
Morgan Stanley economist Hande Kucuk preserved her call for rate cuts next year, saying September’s inflation showed that “firms still have pricing power despite the ongoing slowdown in the economy.” The central bank is likely to wait for the new minimum wage and any other price hikes to be announced, she said.
Turkey will announce its adjustment to the minimum wage for 2025 in December. The government hiked minimum wage salaries by almost 50% at the start of this year.
--With assistance from Kerim Karakaya and Asli Kandemir.
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