Another rate hike cannot be excluded in Turkey - Rabobank

"When Turkey’s central bank announced its decision on September 13 we and most likely many market participants breathed a massive sigh of relief," Rabobank analysts note.

Key quotes

"Governor Cetinkaya delivered a decisive rate hike of 625bps to 24% which reduced the risk of a full-scale currency crisis. The bold move exceeded market expectations of 325bps and our more hawkish 500bps call and provided the severely battered lira with much needed support."  

"The central bank, however, may have to seriously consider another hike on October 25 due to the sharp rise in consumer and producer prices. Following the precipitous fall in the value of the lira, consumer prices were anticipated to accelerate further in September, as reflected in the consensus expectation of 21.1% y/y. That said, the spike to 24.52% y/y - the highest level since June 2003 – was still a major shock. It was accompanied by a staggering rise of 46.15% y/y in producer prices, which implies that inflationary pressure is likely to prevail as producers inevitably transfer rising input costs to their products."

 "To sum up, unquestionably there is no need for substantial rate hike as in September after the lira produced strong gains over the past few weeks. It is also a matter of time when inflation slows down due to the negative output gap. To our mind, however, a 150bps hike would provide the lira with a thicker layer of insulation to potentially intensifying external headwinds. Such a move would also increase central bank’s credibility."