ISTANBUL (Reuters) – Turkish inflation will dip to 46.4% by end-2023, a Reuters poll showed on Monday, while the policy rate is seen rising to 24% next quarter after upcoming elections that pose the greatest challenge to President Tayyip Erdogan’s 20-year rule.
Turkey’s consumer price index surged in the wake of a currency crisis sparked by an unorthodox easing cycle in late 2021. Interest rate cuts were part of Erdogan’s policy of prioritising growth, investment and low borrowing costs.
The inflation surge, to above 85% last year, hit Erdogan’s popularity and polls show him trailing his main challenger. Economists expect a move towards more orthodox policies after the May 14 election.
All 21 economists in the poll expect the central bank (CBRT) to keep its benchmark rate steady at 8.5% this week, its last monetary policy committee meeting before the vote.
“We expect the CBRT to stay on hold at 8.5%,” JP Morgan said in a note, adding that policy uncertainty for future meetings remained high.
After this week’s meeting, the monetary policy committee will next convene on May 25. However the outcome of the presidential election may not become clear until after a potential second round vote on May 28.
Turkey’s policy rate was seen rising to 24.0% in the third quarter, medians showed. It was seen rising to 25.0% in the fourth quarter before falling to 16.5% by end-2024.
Despite expected interest rate hikes, inflation was seen remaining elevated through the year and falling only to 46.4% at end-2023, the poll found, compared to 50.5% in March. It was seen declining to 28.8% by end-2024 and 19.3% by end-2025.
While slashing its policy rate from 19% at the end of 2021, the central bank has said price stability will be achieved when Turkey flips its chronic current account deficit to a surplus.
Ankara says this will be achieved through its import-boosting economic plan. But the war in Ukraine and a decline in foreign demand dashed those hopes in 2022.
The current account deficit in 2023 is expected to be 4.4% of Turkey’s gross domestic product (GDP), the median showed, compared to a government forecast of 2.5%.
The deficit was seen at 3.4% in 2024 and 2.5% in 2025, compared to government predictions published in September of 1.4% and 0.9%, respectively.
GDP growth was seen at 2.6% this year, according to the median estimate of 34 economists. The government had forecast growth of 5% before massive earthquakes in February that are expected shave up to 2 percentage points off economic growth.
The median growth forecast stood at 3.0% for 2024 and 3.8% for 2025 in the poll, compared to the government’s 5.5% forecast for both years.
(For other stories from the Reuters global economic poll:)
(Polling by Vijayalakshmi Srinivasan and Prerana Bhat in Bangalore; Writing by Ali Kucukgocmen; Editing by Jonathan Spicer and Christina Fincher)
