Turkey | CBRT keeps the stance but adds inflation worries

Summary

The Central Bank of Turkey maintained the policy rate (one-week repo) at 19% in line with the expectations. We expect the CBRT to start an easing cycle very gradually in 4Q (depending on the potential market volatility and upside risks on the inflation) and end the year with 17.5% policy rate.

Key points

• Key points:
• The decision statement remained almost the same apart from strong 3Q activity on strengthening external demand and concerns about the food inflation linked to higher global commodity prices and climate change effects
• The CBRT repeated the need to decisively keep the current “tight” monetary policy stance until a significant fall in the Inflation Report’s forecast path is achieved, referring to a timing of late 3Q or start of 4Q.
• Deepening cost-push factors, still robust demand and deteriorating inflation expectations reinforce upside risks on the inflation outlook. Besides, drought and losses on wildfires might result in additional upside risk on the food inflation.
• Given the upside risks, we expect consumer inflation to hover near 19% till November before declining to 16% at the end of the year.

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