JPMorgan ups Turkey inflation, interest rate forecasts
JPMorgan revises its inflation forecast for Turkey to 65% from 62%, with expectations that the annual rate will peak at 73% in May 2024, due to higher-than-expected inflation data for August.
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Posted 9/4/2023, 2:12:00 PM
reuters.com
Relevant topic timeline:
- The Bank of England raised its benchmark interest rate to 5.25% despite a slowdown in consumer-price rises, leading to speculation about when the central bank will end its monetary tightening.
- House prices in Britain fell by 3.8% in July compared to the same month last year, the sharpest decline since July 2009, but the average house price was still higher than earlier this year.
- The Bank of Japan raised its cap on the yield of Japanese ten-year government bonds from 0.5% to 1%, causing the yield to soar to nine-year highs.
- Turkey's annual inflation rate increased to 47.8% in July, the first rise since October, due in part to a new tax on fuel.
- The euro area's economy grew by 0.3% in the second quarter, with much of the growth attributed to changes in intellectual property shifting by multinationals based in Ireland for tax purposes. Germany's GDP growth rate was zero, and Italy's fell by 0.3%.
Turkey's central bank raised its key interest rate by a significant 750 basis points to 25% in an effort to control inflation, marking a shift towards more orthodox policies under the new governor appointed by President Erdogan, Hafize Gaye Erkan. The move comes after years of unorthodoxy and slashing rates in line with Erdogan's belief that high rates fuel inflation, which triggered a currency crisis and a significant decline in the lira's value.
Inflation in Turkey reaches highest level since December 2022, with prices increasing nearly 60% compared to last year, fueled by the depreciation of the Turkish lira and independent economists suggesting consumer prices have risen as much as 128%.
Wall Street banks are revising their outlooks for Turkish interest rates as inflation rises faster than expected, with JPMorgan, Morgan Stanley, and Bank of America suggesting that borrowing costs may need to rise higher or quicker in response to the surge in price growth.
JPMorgan predicts that Turkish interest rates will increase by 10 percentage points in the next two central bank meetings due to fiscal spending plans and higher inflation.
Russia's economy ministry has raised its 2023 inflation forecast from 5.3% to 7.5% due to the impact of the war in Ukraine, and President Putin has acknowledged that high inflation is causing difficulties for businesses.
Goldman Sachs and J.P.Morgan have revised their full-year growth forecast for the UK's GDP due to a sharp contraction in the economy in July, with JPM now expecting 0.4% expansion and Goldman Sachs projecting 0.3% growth. Economists warn of the possibility of a recession as poor economic data continues to emerge, and GDP data indicates a weakening economy.
The Turkish central bank has increased interest rates by five points to 30% in an effort to combat soaring inflation, which is above expectations, and the bank suggests that more rate hikes are likely in the future.