Turkiye's interest rate likely to reach 20pc this week, HSBC predicts it will be 30pc by Dec

Annual inflation may touch 58pc at the end of the year amid lira depreciation

ISTANBUL (Reuters) – Turkish central bank is expected to raise its policy [interest] rate to 20 per cent this week, a Reuters poll showed on Monday, though some economists expect a smaller increase after hikes in previous months remained below expectations.

The central bank embarked on a tightening cycle in June, after President Tayyip Erdogan appointed former Wall Street banker Hafize Gaye Erkan as governor.

As part of the policy pivot, the bank has tightened its one-week repo rate (TRINT=ECI) by 900 basis points, raising it from 8.5pc to 17.5pc, still far below annual inflation at 47.83pc.

It has promised to gradually tighten policy further as necessary to avoid the negative impact of high rates on the economy.

The median estimate of 17 institutions in the Reuters poll was for a 250-basis-point hike in the policy rate to 20pc, with forecasts ranging from 18pc to 20.50pc.

"Durable disinflation is unlikely in an environment where the real policy rate is set to remain deeply negative, even if modest policy rate hikes are complemented by macro-prudential tightening," HSBC said in a note.

It predicted that the policy rate will rise to 30pc by December, but added that risks were still tilted towards a lower terminal policy rate.

The bank has also begun to simplify macro-prudential measures – tools to ensure the financial system's stability – implemented under the former governor, and has supported the rate hikes with qualitative and selective credit tightening.

This weekend, it began rolling back a costly scheme that protects lira deposits against forex depreciation.

The bank sees annual inflation at 58pc at the end of the year, due to the lira's depreciation as well as various tax hikes Ankara recently introduced.

Economists expect the bank to continue to hike rates, and see the policy rate at 25pc by year end, according to the median estimate of seven economists, with forecasts ranging between 20pc and 30pc.

The central bank will announce its rate decision at 1100 GMT on Aug 24.