JPMorgan raises its forecasts for Turkey's inflation and interest rates as the World Bank discusses doubling its lending to $35 billion, confirming that while Ankara is unleashing war chants and investing land and water in the war industry, the Turkish economy continues to slide towards an unprecedented disaster. The only hope for the Turkish economy is agreements with the Gulf petro-states and the World Bank.
Higher-than-expected August inflation data released on Monday prompted JPMorgan to revise its year-end inflation forecast to 65% from 62%, with the annual rate now expected to peak at 73% in May 2024, according to the Wall Street bank.
The bank also said it sees upside risks to its year-end policy rate forecast, which it kept at 35%, but predicted that the central bank's benchmark rate will close next year at 45% instead of its previous estimate of 40%.
"The August CPI suggests a prolonged process of deflation," JPMorgan's Fatih Akcelik said in a note to clients. "Given that we expect persistent inflation, we anticipate more monetary tightening to counter inflationary pressures after the March 2024 municipal elections."
Turkey's annual inflation jumped to a higher-than-expected 58.94 percent in August, official data showed earlier on Monday, rising for a second month after a sharp fall in the lira currency and recent tax hikes.
The World Bank is in advanced talks to potentially double its exposure to Turkey to $35 billion to help stabilize the Middle East's largest non-oil economy, according to people with direct knowledge of the matter cited by Bloomberg.
The talks include a World Bank pledge of up to $18 billion for projects over the next three years, in addition to more than $17 billion in projects already under way, they said, asking not to be named because the talks are not public. The funding will include direct lending to the government as well as private sector support. The Turkish lira pared losses and credit default swaps fell, while the bank index rose as much as 4 percent on the news.
A deal would signal a vote of confidence in the newly established economic administration of Finance and Finance Minister Mehmet Simsek and central bank governor Hafizeh Gaye Erkan. Since their appointment in June, Turkey has begun to undo years of unconventional, growth-oriented economic policies promoted by President Recep Tayyip Erdogan until his re-election in May. Simsek and Erkan are leading efforts to rein in runaway inflation and put the nearly $1 trillion economy on a more sustainable path.
The World Bank expects two-thirds of the $18 billion to go to Turkey's private sector through direct investment and guarantees. Some of the funds will be used to provide short-term guarantees to finance trade and support Turkish exporters.
The program currently under discussion underscores the World Bank's support for Turkish policymakers' efforts to restore macroeconomic stability, according to excerpts from a draft document seen by Bloomberg. Simsek and Erkan met with Ajay Banga, the Washington-based lender's president, in India in July, Turkish state media reported at the time.
Some of the new funds sent will likely be used to help rebuild areas devastated by two massive earthquakes that struck southeastern Turkey on Feb. 6, killing more than 50,000 people.
The government has pledged to build about 200,000 housing units within a year for survivors and has estimated the cost of rebuilding at about $100 billion. The World Bank has already provided a €910.5 million ($980 million) loan to Turkey for reconstruction, part of an existing allocation of $17 billion.
After the earthquakes, Turkey's current account deficit widened to about 6% of gross domestic product as exporters in the affected areas suffered disruptions and extremely low borrowing costs encouraged imports.
Erdogan toured the Middle East Gulf in July, returning with promises of tens of billions of dollars in investment from the United Arab Emirates and Saudi Arabia. The World Bank deal would mark the largest source of external funding since Erdogan's visit to the Gulf petro-states.
