Turkey: Central bank to remain on hold this time – ING

Muhammet Mercan, Chief Economist at ING, expects the central bank of Turkey to keep on hold rates at 24.0% at the next meeting.

Key Quotes

“Given the 625 basis point front loaded hike in September, the ongoing strengthening of the lira on the back of Pastor Brunson’s release and subsequent signals from the US on lifting some sanctions have all been feeding optimism that geopolitical risk for Turkey may finally be improving - we expect the central bank of Turkey to keep on hold rates at 24.0% at the next meeting.”

“However, given the marked deterioration in price-setting behaviour as observed by the big inflation surprise in September and forward-looking expectations, a further adjustment in monetary policy to push the ex-post real policy rate back to positive levels should not be ruled out.”

“Overall, following a front-loaded hike last month that helped support the central bank's credibility and the recent performance of the currency, we expect the CBT to remain on hold this month and confidence to continue, while it will likely maintain hawkish bias with a promise to deliver policy tightening if needed.”

“However, still deteriorating inflation outlook with surge in forward-looking expectations, additional measured policy tightening should not be ruled out to push the ex-post real policy rate towards positive territory again.”