Goldman Sachs: "Fully orthodox" policy maker could raise Turkey rates to 40% By Reuters

4 Key Reasons US Treasury Market Selloff Is Likely to Continue in the Months Ahead

Goldman Sachs: "Fully orthodox" policy maker could raise Turkey rates to 40%

Published Jun 09, 2023 02:12PM ET Updated Jun 09, 2023 02:18PM ET

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© Reuters. FILE PHOTO: New Treasury and Finance Minister Mehmet Simsek looks on during a press conference where Turkish President Tayyip Erdogan announced the new cabinet, in Ankara, Turkey June 3, 2023. REUTERS/Umit Bektas

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LONDON (Reuters) - Goldman Sachs (NYSE:GS) 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%.

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