Turkey's central bank is expected to make a deeper than previously expected cut in its key interest rate this month after President Tayyip Erdogan dismissed its governor, a Reuters poll showed on Wednesday.
Erdogan sackedGovernor Murat Cetinkaya over the weekend, reigniting concerns over politicalinterference in monetary policy and boosting rate cut expectations to revivethe recession-hit economy.
The median offorecasts compiled from 18 institutions showed the economists expected 200basis point rate cut in the policy rate on July 25 after the dismissal ofGovernor Murat Cetinkaya, compared to 100 basis points beforehand.
Erdogan toldreporters that Cetinkaya, who was due to serve until 2020, had made decisionsfor which a high price was paid and he had not inspired market confidence,Haberturk reported on Wednesday.
Cetinkaya's deputy,Murat Uysal, took over as governor.
The Turkish economyshrank sharply for the second straight quarter in early 2019 as a punishingcurrency crisis, persistent double-digit inflation and high interest rates tooka toll on overall output.
"Thereplacement of the central bank governor to us suggests that there is likely tobe a larger rate cut at the end of this month," said Lee Hardmand,currency analyst at MUFG in London.
"I wouldexpect interest rate cuts to be more frontloaded than previously," headded.
Six of 18 economistswho took part in the poll increased their rate cut forecasts after Cetinkaya'sdismissal. Three who previously predicted no change in the policy rate nowexpect a reductions in rates.
The remaining nineeconomists did not change their rate cut forecasts despite the change at thebank's helm.
"The change ingovernor should not be directly linked to a change in the central bank'smonetary policy," said Nilufer Sezgin, chief economist at Is Portfoy,which maintained its forecast for a 100 basis points cut.
However, Sezginsaid Is Portfoy may review its forecast after Uysal makes his first publicstatements. He is expected to give a news conference in coming days.
The central bankhiked its policy rate by 11.25 percentage points to 24% last year to put a floorunder the lira and rein in soaring double digit inflation. It has remainedsteady since September. The lira weakened 30% against U.S. dollar in 2018.
Investors have longbeen concerned over Erdogan's influence over monetary policy, given hisopposition to high interest rates. They also accuse the central bank of actingslowly to defend the lira at the time of the currency crisis.
The median estimatein the Reuters poll for the central bank's year-end policy rate stood at 20%,down from a forecast of 21.5% in June. The latest forecasts ranged between 15%and 22%.
The central bankwill announce its policy rate decision on July 25 at 1100 GMT.
