Turkey: Central bank cuts rate, now time for fine tuning – BBVA

Matías Salord FXStreet

Today, the Central Bank of Turkey (CBRT) cut the policy interest rate by 325 bps from 19.75% to 16.50%. Analysts at BBVA Research point out the move was higher than expected but the reaction of financial markets was positive as the central bank justified the movement with a faster than expected disinflation in the statement.

Key Quotes:

“We assume that after the second bold decision (750 bps in two meetings) the CBRT will move to fine tuning and will continue to decide according to inflation projections and realizations.”

“Given global uncertainties, the CBRT should enhance prudence from now onwards and signal to the market that they will be ready to go in any direction if needed.”

“The CBRT delivered the second bold movement and justified this with the faster than expected disinflation path. This is partly the result of better than expected data in August (15%), the inflation falling below two digits in temporarily September and October and last, but not least, a likely revision in the expected inflation in the short & medium term in the Central Bank Projection models.”

“Once they catch up with the disinflation path, the CBRT should return to maintain the fine tuning and monitoring closely the inflation data & financial stability. At the same time, the Central Bank should be prepared for changes in any direction if needed. We expect rates to close this year in the 15%-16% area.”

Author

Matías Salord

FXStreet

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

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