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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