CBRT passes up on rate cut, but more are underway

The Turkish Central Bank left its weekly repo rate unchanged 14%, in-line with expectations. This also marks the first time that the repo rate has been left unchanged since August, potentially suggesting that the unorthodox easing cycle has ended, comments strategist Justin McQueen.  Turkish economics disagree.


In reaction to the decision, the Turkish Lira firmed over 1% vs the USD, albeit paring some of that move. While the pause is a step in the right direction by the CBRT to bring about some stability in the Lira, there will remain a considerable amount of risk surrounding monetary policy given President Erdogan’s unorthodox views on interest rates.

In social media some Turkish economists interpreted the accompanying MPC statement as paving the way for more cuts.   According to opposition press sources, Erdogan has a 9% CBRT policy rate in his mind, vs 14% now.

In the accompanying statement, the Committee expects disinflation process will begin on the back of measures taken along with the unwind of base effects and thus reinforced their decision to keep the policy rate unchanged. That being said, risks continue to remain tilted to the downside for the Turkish Lira and eyes will be on the cumulative impact of recent rate cuts going forward, adds McQueen.


WATCH:  TURKEY: Next Stop Is Currency Controls | Real Turkey


TL lately benefited from a new swap deal with UAE, as well as clues from Erdogan that he shall not push CBRT to ease further—for now. However, international financial press aired reports claiming the real reason behind TL’s stability is “back-door”  FX intervention by CBRT through anonymous intermediaries and state banks. CBRT balance sheet provides only limited support for this assertion, with FX reserves having increased by $1.5 bn in the last reporting week.  However, the increase might be due to recently-imposed 25% revenue surrender requirement for exporters.


Contrary to claims of CPI having peaked, CBRT’s  own monthly survey found that it will end the year at 27%.    Private economists forecast CPI soaring to 40% in 1H2022.


Reuters poll:  Turkey’s inflation seen dropping to about 27% by end of 2022





Follow our  English language YouTube videos  @ REAL TURKEY:   https://www.youtube.com/channel/UCKpFJB4GFiNkhmpVZQ_d9Rg


And content at Twitter: @AtillaEng



Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.