Turkey: Too soon for the CBRT to pause – Standard Chartered

Carla Slim, Economist at Standard Chartered, suggests that they continue to expect the Central Bank of the Republic of Turkey (CBRT) to maintain a hawkish bias this year given growing economic challenges.

Key Quotes

“Maintaining the attractiveness of Turkish lira (TRY) assets is paramount given the widening current account (C/A) deficit, deteriorating inflation expectations, a widely expected June Fed hike and Moody’s last rating action that put Turkey’s Ba2 rating under review. We raise our 2018 average inflation forecast to 10%, from 9% previously. Higher oil prices are likely to compound inflationary pressures.”

“We do not expect the outcome of the 7 June Monetary Policy Committee (MPC) meeting to be of the same magnitude as the emergency meeting held on 23 May. However, we believe the 300bps emergency hike then has only managed to contain and stabilise the TRY. This might not be enough, in our view. We think the CBRT will likely follow through on its commitment to simplify the interest rate framework and hike the key policy rate – the repo rate – by 100bps. This would require a parallel shift in the lower and upper band of the corridor to maintain symmetry, in our view.”

“We see the Thursday MPC meeting as the CBRT’s opportunity to implement the long-awaited ‘simplification’ framework. We think the CBRT is unlikely to miss this opportunity by adjusting only the corridor’s upper and/or lower bound while leaving the key policy rate unchanged.”