(Bloomberg) -- Turkey’s central bank will probably hold its main interest rate for an eighth straight month this week, though policymakers could indicate the start of an easing cycle as soon as December.
The Monetary Policy Committee is seen leaving the one-week repo rate unchanged at 50% on Thursday, according to all economists surveyed by Bloomberg. Yet policymakers are expected to soften their language in the statement accompanying the decision, signaling a downward move could be imminent.
The policy outlook has been blurred in recent months due to higher-than-forecast inflation prints in September and October. Many analysts pushed forecasts for a rate cut into next year after the release of that data, having previously penciled in November.
But despite appearing to commit to high rates at the last policy meeting, Central Bank Governor Fatih Karahan adopted a different tone earlier this month, while revising up inflation projections for this year and beyond.
The changes suggested a “slightly less hawkish monetary policy stance,” according to Deutsche Bank analysts including Ankit Jain. The bank, which had predicted a rate cut in January, subsequently changed its call to next month.
Goldman Sachs Group Inc. and Morgan Stanley economists, meanwhile, continue to think the first rate decrease will only be delivered in January.
Annual inflation decelerated to 48.6% in October, with the central bank estimating the year-end level at 44%. Policymakers prefer to look at seasonally-adjusted monthly prices, however, and Bloomberg Economics sees a “significant drop” for that measure in November. That could pave the way for cuts to start in December, said Bloomberg’s Turkey economist Selva Bahar Baziki.
With interest rates at 50%, businesses are growing more impatient. Influential lobby group Musiad joined in calls for a cut earlier this week, saying there should be a “symbolic” one next month, complaining the cost of doing business is too expensive.
Turkish President Recep Tayyip Erdogan, known for his aversion to high borrowing costs, also spoke about monetary policy after months of silence, giving a rather cryptic message that “both inflation and borrowing costs will fall.”
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Erdogan has pushed central bankers to lower rates in the past — regardless of inflation — to spur economic growth and has removed those who didn’t toe the line.
With a debate on next year’s minimum-wage raise looming, more attention is being paid to complementary fiscal steps to help bring inflation down. Karahan said prices not under control mostly stem from areas where monetary policy has little effect.
Treasury and Finance Minister Mehmet Simsek conceded that prices are higher than anticipated and additional steps would have to be taken.
--With assistance from Joel Rinneby.
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