interest rate

The PBoC unexpectedly cut the 5-year loan prime rate by the largest amount today while maintaining the one-year loan prime rate which is deemed to be the policy rate unchanged.

Growth in 2023 is revised upwards to 2.4% and downwards in 2024 to 2.1%. The improvement is explained by statistical revisions and export developments. There are doubts about the sustainability of the pace of expansion and job creation in 2024, in line with the uncertainty in the global economy.

We expect output to grow by 3,1% in 2020, a forecast which is similar to the one we made in October, while in 2021 economic activity would grow by 3,5%. The main drivers will be the normalisation of primary activities (mining) and public spending, to which a stronger private spending will be added next year.

The Central Bank of Turkey (CBRT) decreased the policy rate by 200 bps to 12% from 14%, slightly higher than market expectation of 150 bps. Global Central Banks Dovishness remain supportive but we think that complacency should be ruled out and the CBRT should be ready to act in any direction if the situation change.

The ECB strengthened its forward guidance on rates, with no rate hikes at least through the end of 2019. They also launched a new series of TLTROs. The central bank made a significant downward growth revision in 2019, but minor changes in the medium term. Despite the revision, risks remain tilted to the downside.

GDP growth to moderate in 2019. Risk of recession remains elevated over the next 24 months. Fed to delay raising rates in 1H19 as it continues to engineer a soft-landing. Labor market slack remains minimal. Inflation expectations down, as pass-through from rising input costs muted. 10-year Treasury to follow shallower path.