Turkey | The CBRT stays on hold but reinforces its tight stance

Summary

The CBRT maintained the policy rate at 17% in line with the expectations. It also underlined the decisive maintenance of the tight stance “for an extended period of time” until strong indicators point to a permanent fall in inflation and price stability. We expect the policy rate to be 14% at the end of 2021.

Key points

• Key points:
• The CBRT admits the uncertainties in the inflation outlook (domestic demand conditions, costpush factors, exchange rate effects, increasing international food and other commodity prices, high levels of inflation expectations, recent supply constraints intensifying in some sectors, and the adjustments in wage and administered prices) and tries to guard itself by providing a forward guidance in a much clearer way.
• The CBRT expects the impact of the recent strong monetary tightening to be much more effective on domestic demand and accordingly contain demand-pull and cost-push factors on inflation gradually.
• The Bank reinforced its hawkish stance by providing a commitment for a longer duration of the tight stance and additional monetary tightening if needed.
• We maintain our expectations having the first rate cut of the CBRT in 4Q21 only in a very gradual manner and expect the policy rate to be 14% at the end of 2021.

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