By Karin Strohecker and Jonathan Spicer
WASHINGTON/ISTANBUL (Reuters) -Turkish central bankers told foreign investors in meetings last week that they were increasingly concerned about inflation and suggested they were ready to slow down the pace of interest rate cuts, according to four participants in the discussions.
The sources, all foreign investors holding Turkish bonds, attended some of a series of presentations by Central Bank Governor Fatih Karahan and his two deputies on the sidelines of the annual IMF and World Bank meetings in Washington.
The investors told Reuters that the policymakers gave no specific guidance about how much they could downshift their easing cycle this week, after rate cuts of 250 and 300 basis points in September and July, respectively.
But at the events, the central bankers said that they would closely watch market expectations ahead of their policy decision on Thursday, and that they aimed to address what one source called “sticky” inflation observed in recent months.
The central bank did not immediately comment on the investors’ impressions. Karahan, approached in Washington on the sidelines of the meetings, declined to comment. Earlier this month, he acknowledged that data suggested the disinflation process is slowing.
POLL SHOWS UNCERTAINTY ON NEXT RATE CUT
Turkey’s inflation rate was 33.3% in September, more than expected and marking the first annual rise since a peak of 75.4% in May last year. Monthly and annual readings were also higher than expected in August.
According to a Reuters poll, economists expect a 100 basis-point cut this week to 39.5%, based on the median response.
But predictions were quite scattered, reflecting uncertainty over how the bank would respond to recently high price readings. Four of the 17 respondents expected the bank to pause its easing while five predicted a 150-point cut and two saw a 250-point reduction.
The central bank’s last two rate cuts were a bit more aggressive than expected, raising prospects of a course correction, said the four participants. Two said policymakers appeared ready to halt rate cuts if needed.
At an Atlantic Council event in Washington that was broadcast online last week, Karahan said: “The downward trend has slowed down a little bit recently, which we are taking note of as important.”
Progress so far towards price stability is “very significant and encouraging”, he added, and he again pledged to keep policy tight until it is achieved.
PENDING DEPARTURE OF HAWKISH POLICYMAKER
The central bank made a shift in mid-2023, leaving behind years of unorthodox low-rate policy that had sent inflation soaring and the currency plunging. Since then, tighter monetary policy has helped restore reserves and draw foreign investors back to Turkish assets.
In Washington, investors said there was some concern over the mandatory age-based retirement in April of Deputy Governor Cevdet Akcay, an influential hawk on the central bank’s policy committee. His successor has not yet been announced.
(Reporting by Karin Strohecker and Jonathan Spicer; Editing by Hugh Lawson)
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