SHAFAQNA TURKEY – Investment bank Goldman Sachs said the appointment of Mehmet Šimşek as finance minister and Hafize Gaye Erkan as governor of the Central Bank of Turkey indicates a widespread understanding that monetary and financial adjustments are needed in the new administration.
Revising a number of its forecasts for Turkey, the bank noted that the stabilization of the economy “will require a major and periodic adjustment of the exchange rate.”
In a briefing to clients, one of the bank’s economists, Clemens Graf, wrote that while the monetary policy framework is unknown at this stage, “purely orthodox policy” would allow the exchange rate to be set in advance and raise the repo rate to a level that would stabilize interest rates in the economy.
“In our view, this suggests that an orthodox politician will raise interest rates to the current level of deposit rates of 40 percent,” Graf said. said.
Graf also said that once the exchange rate and inflation expectations stabilize, interest rates could be cut quickly, perhaps to around 25 percent by the end of the year.
The bank also cut Turkey’s annual GDP estimate, previously set at 2.9 percent, to 2.3 percent.
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