Goldman Sachs: "Fully orthodox" policy maker could raise Turkey rates to 40%
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2023-06-10 02:24
LONDON Goldman Sachs said on Friday the appointments of Mehmet Simsek as Turkish finance minister and Hafize Gaye

LONDON Goldman Sachs said on Friday the appointments of Mehmet Simsek as Turkish finance minister and Hafize Gaye Erkan as central bank governor suggested a widespread understanding in the new administration that monetary and fiscal adjustments were needed.

The Wall Street bank, in an overhaul to a number of its forecasts for Turkey, said stabilising the economy "will require a large, and we think discontinuous, adjustment to the exchange rate."

While guidance was for the monetary policy framework was still missing at this stage, the bank noted, a "fully orthodox policy-maker" would allow the exchange rate to adjust upfront and would raise the repo rate to a level where it anchored interest rates in the economy.

"In our view, this suggests that an orthodox policy-maker would raise rates to 40%, the current level of deposit rates," Clemens Grafe said in a note to clients.

Grafe added that once the exchange rate and inflation expectations stabilised, rates could be lowered quickly, possibly to 25% by end-year.

Goldman Sachs also cut Turkey's GDP forecast to 2.3% year-on-year in 2023, from previously 2.9%.

(Reporting by Karin Strohecker; editing by Dhara Ranasinghe)

Tags economy goldman turkey epus finance sachs