3 Feb 2015
Further rates cut expected in Turkey – TDS
FXStreet (Edinburgh) - Strategist at TD Securities Paul Fage believes the CBRT will incur in a 50 bp rate cut in its next meeting on February 24th following today’s drop in the inflation figures.
Key Quotes
“The CBRT is currently trying to conduct its monetary policy against a backdrop of intense pressure for lower rates from President Erdogan and government politicians”.
“At present the focus of the CBRT and politicians is on the headline inflation rate and we think this will be the main driver of interest rate policy”.
“However, the only modest decline in the core inflation rate shows that there is a high level of underlying structural inflation. This suggests that once the disinflationary effects of lower oil prices and moderating food price inflation have played out, headline inflation and hence interest rates could head back up again very quickly”.
“The attention of the markets now switches to the regular MPC meeting on 24 February. We think the MPC will almost certainly cut rates, but will try to adopt a measured approach and cut the benchmark repo rate by just 50 bp”.
“However, the political pressure for greater rate cuts will be strong and we see the risks skewed towards more rather than less than 50 bp in cuts”.
Key Quotes
“The CBRT is currently trying to conduct its monetary policy against a backdrop of intense pressure for lower rates from President Erdogan and government politicians”.
“At present the focus of the CBRT and politicians is on the headline inflation rate and we think this will be the main driver of interest rate policy”.
“However, the only modest decline in the core inflation rate shows that there is a high level of underlying structural inflation. This suggests that once the disinflationary effects of lower oil prices and moderating food price inflation have played out, headline inflation and hence interest rates could head back up again very quickly”.
“The attention of the markets now switches to the regular MPC meeting on 24 February. We think the MPC will almost certainly cut rates, but will try to adopt a measured approach and cut the benchmark repo rate by just 50 bp”.
“However, the political pressure for greater rate cuts will be strong and we see the risks skewed towards more rather than less than 50 bp in cuts”.