Next week, the central bank of Turkey will announce its decision on monetary policy. The Turkish lira resumed its recovery this week with USD/TRY holding below 8.00 and it ended on Friday near 7.60. According to analysts at Wells Fargo, the central bank will keep the rate at 15%, against market consensus of an increase to 16.50%.
Key Quotes:
“In early November, President Erdogan removed the head of the central bank for failing to stabilize the currency and appointed former Finance Minister Naci Agbal as Turkey’s new central bank governor. With a technocratic replacement, market participants had high expectations for a more orthodox policymaking framework, and Agbal delivered, with a significant interest rate hike. At its November policy meeting, the central bank increased its one-week repo rate 475 bps to 15.00%, and said all funding will be provided through the main policy rate. After November’s significant rate hike, we look for the policy rate to remain steady at 15.00% at next week’s policy meeting.”
“President Erdogan continues to comment on unorthodox monetary policies and fundamentals in Turkey remain weak, with Turkey’s CPI inflation still elevated at 14.03% year-over-year in November. Going forward, markets are likely to continue to question the independence of the central bank.”
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