Close call as Turkey set to cut rates a bit more: Reuters poll

ISTANBUL (Reuters) - Economists are split between those predicting Turkey’s central bank will cut rates this week and those who see no change at all, a Reuters poll showed on Monday, suggesting an aggressive easing cycle could be drawing to a close.

The central bank has halved its policy rate to 12% since July last year. It has said its current stance was in line with the projected disinflation path, and that it had used significant amount of leeway to loosen policy to boost recovery from recession.

The Reuters poll showed 21 economists mainly split between two camps, with eight expecting the bank to keep its policy rate steady and six predicting a cut bringing it to 11%. Seven others also expected a rate cut of some sort.

The median estimate was for a cut of 50 basis points, while the most aggressive expectation was for a 125-point cut. No economist polled expected a rate hike.

The bank last year tied its policy stance to delivering a “reasonable” real interest rate. But after the December annual inflation reading of 11.84%, the real rate has narrowed markedly.

Haluk Burumcekci, of Burumcekci Consulting, said the bank’s recent communication has confused economists.

“It said the last time that (policy) was in line (with the targeted disinflation path)... but we’ve seen up to now that this does not prevent rate cuts,” he said of the bank’s tendency last year to cut by more than expected.

Burumcekci, who predicts a 100-point cut, added that some economists expect a pause to cuts because of recent volatility in the lira and in swaps, thanks to tensions between Iran and the United States.

If the bank cuts rates, he said, “I am guessing that it will probably not give a very clear signal” of the future policy plan.

President Tayyip Erdogan, a self-described “enemy” of interest rates, said he believes high rates stoke inflation and he has repeatedly said they will fall to single digits in 2020. The government seeks 5% growth this year, following a recession in which the economy contracted annually in three consecutive quarters.

Nilufer Sezgin, chief economist at Is Portfoy, forecast no rate cut but said signals for a move had increased in recent days.

Indicators suggest “the market can comfortably absorb a rate cut,” she said. “We have ambitious growth targets for 2020. If authorities think that lowering rates early on will not reflect negatively in the market, then they could be lowered.”

The central bank will announce its rate decision at 1100 GMT on Jan. 16.

Reporting by Ali Kucukgocmen; additional reporting by Nevzat Devranoglu; Editing by Jonathan Spicer