Turkey | The CBRT reinforces its hawkish stance

Summary

The Central Bank of Turkey raised the policy rate by 200bps to 17%, exceeding the median expectation (150bps). Adopting a medium term perspective against inflation and taking the end-2021 forecast target (9.4%) as guidance confirm the decisiveness of the CBRT to initiate a disinflation process as soon as possible.

Key points

• Key points:
• Given the upside surprise in November inflation release, lagged effects of the exchange rate pass-thru, and increasing supply side factors, inflation will be increasing above 15% till May 2021 even under a stabilized currency.
• The forward guidance in terms of taking into account the end-2021 forecast target (9.4%) and adopting a framework with a medium term perspective should also be welcomed in order to eliminate risks on the inflation outlook.
• We evaluate today’s decision as a front-loaded action to contain still deteriorating inflation expectations and continuing dollarization tendency of the residents.
• We expect a comprehensive policy-mix targeting a rebalancing in the economy by eliminating disequilibria in a context that would be complementary to the already tightened monetary policy.

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