Turkey | The CBRT repeats the same messages

The Central Bank of Turkey (CBRT) maintained the policy rate (one-week repo) at 19% in line with the expectations. Given the rising upside risks on inflation outlook and potentially increasing global yields, we expect the CBRT to start an easing cycle only very gradually in October and end the year with 17.5% policy rate.

Key points

• Key points:
• The CBRT repeated the need to decisively keep the current “tight” monetary policy stance until a significant fall in the April Inflation Report’s forecast path is achieved, referring to a timing of late 3Q or start of 4Q.
• The CBRT continues to rely on the decelerating impact of the monetary tightening on credit and domestic demand but economic activity remains strong, which they also confirm.
• The current account balance is expected to post a surplus in the rest of the year with strong upward trend in exports, and the strong progress in the vaccination program stimulating tourism activities.
• Deepening cost-push factors, still growing domestic demand, reopening of the economy and supply side problems reinforce upside risks on the inflation outlook.
• Given the increased upside risks, we expect consumer inflation to hover near 18.5% till November before declining to 16% at the end of the year.

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