Finally, Turkey is set to initiate an "extremely aggressive rate hike". Following President Erdogan's smooth reelection, it seems time has come for a "violent rate hike."
As Bloomberg reported on Monday, economists are predicting that Turkey's central bank will substantially raise interest rates at its meeting on Thursday, though expectations for the size of the increase vary greatly.
With Erdogan reshuffling his cabinet, investors and strategists are betting on a gradual return to orthodoxy in the Turkish economy. Erdogan also hinted at maintaining some flexibility in monetary policy, which is seen as a reversal of Turkey's unconventional policy of tackling inflation with rate cuts.
Economists such as Goldman's Waleed Mohsin anticipate that on June 22, Turkey's central bank will increase the benchmark interest rate from the current 8.5% to 40%, marking the first increase since March 2021.
Could the rate be hiked by 3,150 basis points right off the bat?
Economists like Bank of America's Zumrut Imamoglu offer a slightly more "conservative" projection, expecting Turkey's benchmark interest rate to rise to 25%, but also noting the potential for an unexpected rate cut.
Deutsche Bank forecasts that the benchmark interest rate in Turkey will initially increase to 20% in June, which is consistent with the median value of Bloomberg's survey of 20 economists.
Both Bank of America and Deutsche Bank believe that Turkey's central bank may provide forward guidance for further rate hikes at this meeting, though not as aggressive.
However, not everyone agrees that Turkey's central bank will make such a large rate hike this week.
Some institutions, including Societe Generale and Bloomberg Economics, expect the rate to rise to 15%, while Standard Chartered anticipates an increase to just 14%.
Deutsche Bank strategist Christian Wietoska highlighted that decisions other than the rate hike are also important. He referred to remarks by the new Central Bank Governor, Hafize Gaye Erkan, about the authorities' commitment to monetary tightening and macro-prudential measures.
Bank of America strategist Imamoglu anticipates that the "unwinding" of Turkey's monetary policy regulation will be gradual, reducing the possibility of a large one-time rate hike.
Since Turkey's general election on May 28, the Turkish lira has depreciated by 16%.
The central bank's monthly survey last week showed that market participants have doubled their forecast for the one-week repurchase rate from 8.5% on June 22 to 17%.
