Turkey | No change in the CBRT monetary stance

Summary

The Central Bank of Turkey kept the policy rate at 19% in line with the expectations. Given the worsened inflation expectations, the CBRT repeated the need to decisively keep the current “tight” monetary policy stance. Thus we expect an easing cycle only very gradually in late 3Q and end the year with 16% policy rate.

Key points

• Key points:
• Inflation expectations deteriorated further as year-end expectation increased to 14.5%, while the 12-month and 24-month ahead expectations also rose to 12.1% and 10.2%, respectively.
• The CBRT still relies on the decelerating impact of the monetary tightening on credit and domestic demand but economic activity remains strong, as the Bank also confirms.
• Strengthening cost push factors, supply side effects, still effective domestic demand and continuing pass-thru impact besides potential effects of hawkish messages of FED on EM’s, we expect consumer inflation to fluctuate around 17% till November and complete year at 15%
• The CBRT repeated the need to keep decisively the current “tight” monetary policy stance to eliminate any early rate cut expectations.

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