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PIG TODAY-Central Bank of Turkey: Keep calm and carry on - Natixis

Inna Mufteeva, Research Analyst at Natixis, explains that once again the CBRT decided not to move its key rate even after the inflation rose to a double digit figure of 10.1% due to the past currency depreciation and rising food prices.

Key Quotes

“Instead, it proceeded with the 75bps increase of the late liquidity window lending rate which now stands at 11.75% while the overnight interest rate corridor was this time left unchanged at 200bps (with the O/N lending rate at 9.25%). Coupled with the steering of the borrowing limits for banks this measure should allow to increase slightly the average lending rate to the financial system.”

“Meanwhile, rising oil prices, volatility in food prices and lagged impact from TRY depreciation should probably push inflation further above 10% in the months to come, despite the slowdown in economic activity and domestic demand.”

“Therefore, the CBRT will most probably keep on with its tightening stance, although it seems unlikely to move the key rate again and would thus rely more on other tools (including the liquidity provided to the banks).”

“Meanwhile, the downward risks on the Lira persist: the ongoing concerns about the upcoming referendum on the constitutional reform and the external imbalances weigh on investors’ confidence, while a more “hawkish” Fed (proven by yesterday rate hike) would deter the investors from piling up the EM assets from fragile economies (including Turkey).”

Inna Mufteeva, Research Analyst at Natixis, explains that once again the CBRT decided not to move its key rate even after the inflation rose to a double digit figure of 10.1% due to the past currency depreciation and rising food prices.

Key Quotes

“Instead, it proceeded with the 75bps increase of the late liquidity window lending rate which now stands at 11.75% while the overnight interest rate corridor was this time left unchanged at 200bps (with the O/N lending rate at 9.25%). Coupled with the steering of the borrowing limits for banks this measure should allow to increase slightly the average lending rate to the financial system.”

“Meanwhile, rising oil prices, volatility in food prices and lagged impact from TRY depreciation should probably push inflation further above 10% in the months to come, despite the slowdown in economic activity and domestic demand.”

“Therefore, the CBRT will most probably keep on with its tightening stance, although it seems unlikely to move the key rate again and would thus rely more on other tools (including the liquidity provided to the banks).”

“Meanwhile, the downward risks on the Lira persist: the ongoing concerns about the upcoming referendum on the constitutional reform and the external imbalances weigh on investors’ confidence, while a more “hawkish” Fed (proven by yesterday rate hike) would deter the investors from piling up the EM assets from fragile economies (including Turkey).”

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