Turkey's central bank to hike rates another 150 points

ISTANBUL: Turkey's central bank is expected to raise its key interest rate by 150 basis points next week, a Reuters poll showed on Friday as it aims to cool inflation and dollarization, and bolster credibility under new governor Naci Agbal.

The median estimate in a Reuters poll of 18 economists was for the central bank to hike its one-week repo rate to 16.50pc from 15pc. The estimates ranged between hikes of 75 basis points and 200 basis points.

The central bank is scheduled to announce its rate decision on Dec. 24 at 1100 GMT.

Agbal took office in early November in a surprise leadership overhaul and the bank then hiked its key rate by 475 points to 15pc.

But inflation jumped to 14pc in November and Turks continue to buy foreign currencies at record levels, putting pressure on the bank to tighten again as soon as next week.

This week, Agbal said Turkey will keep monetary policy tight in the new year and hike interest rates further if necessary to achieve a lasting fall in inflation.

In order to restore credibility and persuade local investors to de-dollarize the central bank needs to provide a real interest rate of around two percentage points, JP Morgan said in a note, adding the central bank could tighten above market expectations.

"This will be instrumental in restraining demand-led pressures and more importantly could boost CBRT credibility and start the de-dollarization (which seems to be a major priority for the CBRT) earlier than envisaged," it said.