Türkiye | The CBRT gives more hawkish messages

Summary

The Central Bank (CBRT) maintained the policy rate at 45% as expected. We maintain our call of keeping 45% policy rate throughout the year with a bias tilted to the upside.

Key points

• Key points:
• The CBRT now seems more concerned about the inflation outlook since they observe slower than projected consumption expenditures in some items and signal potential pressure from inflation expectations and pricing behavior due to wage increases.
• For the first time, the CBRT referred to the real appreciation of Turkish lira being a key element of disinflation, from which we understand they want to give the message that a fast depreciation of the currency will not be allowed.
• They give a clearer message on potential further tightening by saying that in case of a significant and persistent deterioration in inflation outlook “monetary stance will be tightened”, rather than “monetary stance will be reassessed”.
• The CBRT repeated their commitment to keep the current stance until there is a significant and sustained decline in the monthly inflation trend and until inflation expectations converge to the projected forecast range (30-42% for 2024 end, 7-21% for 2025 end).
• In order to strengthen monetary transmission mechanism, we still believe macro-prudential measures (particularly credit policies) and quantitative tightening tools will be primarily preferred.

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