Turkey: Central bank to maintain interest rates but cuts are likely before year-end – MUFG

Analysts at MUFG Bank expected the Central Bank of Turkey to keep the interest rate unchanged at the next meeting. They see the central bank cutting 200bp before year-end. 

Key Quotes:

“The Central Bank of Turkey (CBRT) is expected to keep rates on hold at 19%, in line with our (and consensus) expectations. Whilst expectations of a rate cut are rising, we view that the CRBT will not want to disappoint markets with an unexpected rate cut this month.”

“We anticipate that the recent fall in core inflation will not be enough for the CBRT to start cutting rate this month.”

“Looking ahead, we maintain our base case for a cumulative 200bp cut in the one-week repo rate before year-end, taking the policy rate to 17%.”

“We see risks of the CBRT lowering rates as early as October but this will need to be delicately counterbalanced by financial conditions that are likely to tighten from this point on given the imminent Fed tapering announcement – which could thus limit how much the CBRT can ease.”

“In general, we are firmly of the view that the “credit-fuelled, economic growth at all costs strategy” of the CBRT warrants an easing bias. Core to watch will be the communication post the 23 September rate meeting for any pivot in rhetoric that signals the CBRT believes that there is, or there will be, a material improvement in core inflation dynamics, which could skew the easing cycle to commence in October.”