July 20, 2018 / 11:25 AM / 25 days ago

Turkish central bank seen hiking main rate by 100-125 basis points as inflation spikes: Reuters poll

ANKARA (Reuters) - Turkey’s central bank is likely to lift interest rates at its meeting next week, with a 100-125 basis point increase in its policy rate seen as most probable, after inflation hit a 14-year-high in June, a Reuters poll showed on Friday.

Fifteen of 16 economists polled after annual inflation climbed to 15.4 percent said they expected the central bank to hike its one-week repo rate, which it uses to set policy, on July 24. The rate now stands at 17.75 percent.

The Turkish lira has lost more than a fifth of its value against the dollar this year, hit by concerns about the central bank’s ability to rein in double-digit inflation and government influence over monetary policy. That has driven up the cost of food, fuel and consumer goods.

Concerns about the central bank’s independence intensified after President Tayyip Erdogan appointed his son-in-law Berat Albayrak treasury and finance minister, boosting expectations the president - a self-described “enemy of interest rates” - will look to exercise greater influence over monetary policy.

“The main reason that I expect a rate hike from the central bank in July is that the negative inflation outlook is far beyond the bank’s expectations,” said Sakir Turan, an economist from Odeabank said.

“The central bank needs to implement a rather tight monetary policy.”

Six of the 16 economists polled said they expected the bank to tighten by 100 basis points. Another six economists saw a hike of 125 basis points. Two predicted it would raise the rate by 150 basis points while one economist said the bank could raise by 75 points.

One economist said it would leave the one-week repo rate untouched.

The year-end inflation expectation was raised to 13.88 percent from previous 12.28 percent, a central bank survey of business leaders and economists showed on Thursday. The bank’s inflation target is 5 percent.

The central bank’s monetary policy committee has raised rates by 500 basis points since April in an effort to put a floor under the currency and ensure price stability.

Albayrak said Turkey will prioritise the rebalancing of its economy and the fight with inflation and will support predictable, simple and decisive monetary policy, in one of his first comments since his appointment.

(This version of the story has been refiled to fix the polling data link in the first bullet point.)

Writing by Ezgi Erkoyun; Editing by David Dolan

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