Middle East

Goldman Sachs, Barclays see Turkey cutting rates to 15%

2 minute read

Business and residential buildings are seen in Sisli district as the outbreak of the coronavirus disease (COVID-19) continues, in Istanbul, Turkey September 7, 2020. REUTERS/Murad Sezer/File Photo

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LONDON, Oct 21 (Reuters) - Turkey's central bank will continue to reduce interest rates for the remainder of the year in the wake of its bumper 200 basis point cut, before halting its rate cutting cycle at 15%, analysts at Goldman Sachs and Barclays forecast on Thursday.

Goldman Sachs predicted policymakers would trim the benchmark first by 50 bps and then deliver two 25 bps rate cuts over the next three meetings, which in its view is a mistake given rising inflation rates.

"We think that the high and increasing level of inflation, rather than growth, is the key problem for the Turkish economy," said Goldman analysts. "Given this and inflation four times the official target, we see inflation as the primary problem and continue to think that rates should rise."

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Turkey's central bank cut the rate to 16% on Thursday.

Barclays forecasted policymakers would frontload further rate reductions to hit the 15% mark, and predicted this to happen in one fell swoop on Nov. 18.

"Looking at 2022, we forecast rates on hold at 15% , with upside risks," Barclays Ercan Erguzel said.

Barclays also forecast Turkey consumer inflation would stand at 15.5% at year-end and confirmed its lira forecast of 9.7 to the U.S. dollar by end-2021.

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Reporting by Karin Strohecker Editing by Tommy Wilkes

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