Turkey | The easing cycle starts with a bold action

The Central Bank of Turkey (CBRT) reduced the policy rate by 425 bps from 24% to 19.75%. The movement was bolder than expected by market expectation and ours (Consensus 250 bps, BBVA 200 bps). Some risks remains on both economic and geopolitical sides which should be met with a gradual and cautious policy.

Key points

• Key points:
• CBRT took a bold action today based on the expected easing in external financial conditions, inflation realization and expectations.
• In absence of new shocks, inflation will start to come down fast, given the favorable base effects, still weak internal demand and stabilization in currency.
• However, some factors as the high inertia in services prices, high inflation expectations and still unsolved geopolitical uncertainties will require the CBRT to be prudent to avoid policy mistakes.
• Aside risks, the easing cycle will contribute to support the ongoing recovery providing some room for fiscal consolidation effort from now onwards.

Authors

Geographies

Topics

Tags