Prediction for Turkey from a world-renowned bank: Inflation will decrease to 40 percent.

Deutsche Bank Middle East and Eastern Europe Research Director Hans-Christian Wietoska stated that they expect inflation in Turkey to decrease to 40 percent by the end of the year, saying, "We expect a strong disinflation process. The real question will be to reduce inflation to 20 percent in the second stage."

Wietoska answered questions about the change in Turkey's macroeconomic policies, inflation and interest rate expectations, and investors' view of Turkey. Wietoska stated that Turkey has taken a very good step by initiating the change in macroeconomic policies since last year and emphasized the importance of continuing this change in the local elections.

"WE CAN SAY THERE WAS A U-TURN"

Wietoska stated that the 500 basis point increase in the policy rate by the Central Bank of the Republic of Turkey (CBRT) before the local elections was a "strong message and game changer," and said, "We can say that there was a U-turn after this step. Domestic and foreign investors were expecting a devaluation in the lira, but the CBRT clearly demonstrated that a sharp depreciation strategy in the currency was not part of its policy with the interest rate hike." Wietoska also stated that clear and transparent communication with investors increased confidence in future policies and mentioned that the CBRT faces some challenges but has the necessary framework to overcome these problems.

Wietoska reminded that the perception regarding Turkey has been quite positive in recent months, net reserves exceeded $10 billion, and international reserves approached the level of $150 billion.

"WE EXPECT A STRONG DISINFLATION PROCESS"

Wietoska drew attention to the fact that inflation has reached its peak and continued his speech as follows: "The first stage in terms of balancing the economy has been successfully completed. Now the second stage begins. Inflation is starting to decline after reaching its peak, and we expect a strong disinflation process. We predict that inflation will decrease to 40 percent by the end of the year. The real question will be to reduce inflation to 20 percent in the second stage. In addition, growth is also slowing down, and the reaction of the CBRT will be important when growth slows down."

Wietoska stated that it would be the right time for interest rate cuts when growth slows down and inflation recedes, and said, "We expect a 500 basis point interest rate cut this year, in November and December. This is our base scenario, and the easing will continue at the beginning of next year."

"IF TURKEY BALANCES ITS ECONOMY WITHOUT ENTERING A RECESSION, IT WILL BE A UNIQUE EXAMPLE"

Wietoska emphasized the importance of the CBRT maintaining its tight monetary policy stance and said, "It won't be easy, but no country in the world with 75 percent inflation has reduced inflation without entering a recession before. If Turkey can balance its economy without entering a recession, it will be a unique example, and we are quite optimistic that Turkey will succeed in this. However, there should be no policy mistakes halfway."

Wietoska stated that their year-end dollar/TL expectation is 37 and that they expect a real appreciation in the TL.

INVESTMENTS IN TL BONDS MAY EXCEED $10 BILLION

Assessing the change in the perception of international investors towards Turkey, Wietoska said that interest in carry trade and trade in foreign currencies is quite high, and there has been almost no investor who has not been interested in Turkey in this area in the last 6 months.

However, Wietoska emphasized that the real important point is investment in TL-denominated bonds and concluded his speech as follows:

"There is also a big change in perspective here. Foreigners are very excited about bonds. I was in a meeting with international investors a short time ago, and Turkey was one of the most popular countries. Investors are much more interested in entering fixed income trading. We are still at the beginning, but we have seen $8.5 billion of inflows (into TL-denominated bonds) in the last 8 weeks. This figure can reach $20 billion by the end of the year. So, there is a possibility of at least $10-15 billion more bond inflows by the end of this year. This figure can increase even more next year and reach a total of $30-40 billion compared to the current approximately $10 billion."

Deutsche Bank economists expect the Turkish economy to grow by 3.5 percent this year.

ŞİMŞEK: WE HOPE TO CLOSE THE YEAR AROUND 38

In a recent statement, Treasury and Finance Minister Mehmet Şimşek said, "Turkey is not successful in disinflation. We are currently at the beginning of the disinflation period. Next month, inflation can be around 60 percent, the following month around 50 percent, and then it can go slightly below 50. Then, we hope to close the year around 38. Our goal for next year is to permanently reduce inflation below 20 percent and below 10 percent in the following year."