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.
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.
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