Turkey To Raise Interest Rates

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Turkey To Raise Interest Rates

Turkey To Raise Interest Rates - Goldman Sachs

Goldman Sachs has forecasted that Turkey will raise rates during Q2 2025. This will be done to calm the markets as Turkey is going through a period of market turmoil.

Meanwhile, the political turmoil is also adding fuel to the fire and making things difficult for Turkey. If the Goldman Sachs forecast is true, the interest rate in Turkey will increase by 350 bps.

Interest Rate At Historic High Levels

After the increase, the new rate in Turkey will be nearly 42.5%. No matter how we look at it, a rate this high isn't normal and highlights the economic fault lines.

The ongoing protests in Turkey, along with the Eid holiday, will also increase the demand for foreign exchange. Once again, this will put pressure on the foreign reserves.

If we look around, Goldman Sachs' forecast is a little more hawkish than others. For example, Morgan Stanley and JPMorgan believe that the easing cycle will end during the next meeting. They added that rates will remain the same.

As of now, majority of the Turkish assets are under pressure due to the political turmoil. On top of that, mass demonstrations are being held in Ankara, Istanbul, and other cities.

To make things worse, the state bank has also sold billions of dollars in an attempt to support the Lira. This is just a temporary measure and has cost the central bank a lot of foreign reserves.

According to estimates, the interventions during the last few days have cost almost $27 billion. For an economy the size of Turkey, that's a big number.

The Goldman analysts stated that they believe the bank's decision to raise the lending rate was influenced by both the necessity for additional conversations prior to increase its main policy rate and the expectation that the selling pressure will be eased swiftly.

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