Türkiye Economic Outlook. March 2024

Summary

After the local election results, we expect the maintenance of current economic policies with more aggressive tightening in the short term. Therefore, expected additional restrictive measures might generate downside risk on our short term inflation (45% by 2024 end) and growth (3.5% for 2024) forecasts.

Key points

• Key points:
• Consumption and dollarization tendency of residents gained pace ahead of the election, which required the CBRT to react expected than before: higher ask & bid spreads in FC sales of banks, non-deliverable TL forward contracts, new macro-prudential on lending, and later 500 bps surprising rate hike to 50%.
• We envisage additional demand restrictive policies from now onwards, including a tighter fiscal stance except for the needed earthquake spending.
• We expect the CBRT to remain tight for longer, which would start a sustained path to unwind current regulations and exit from the FC protected scheme, in order to strengthen the monetary transmission mechanism.
• Thereafter, if inflation trend improves to a level that the year-end inflation falls below 42% -upper bound of the CBRT forecast range-, there might be a limited room to start an easing cycle with very gradual steps in 4Q24.
• On the global front, weak growth will lead to an extra easing of inflation and rate cuts from mid-2024; still, price pressures and interest rates will remain relatively high compared to pre-pandemic period.

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