Türkiye | The CBRT seems to be ready for easing

The CBRT kept the policy rate at 50% with important changes in their communication, signaling an easing cycle as early as December. We believe the CBRT will be required to start with very cautious steps and expect the first rate cut in December with 100bps.

Key points

• Key points:
• The assessment of the CBRT on the inflation outlook turned out to be more positive, evaluating domestic demand conditions at disinflationary levels. They are now more comfortable on the signs for the improvement in services inflation. Also, they refer to inflation expectations and pricing behavior tending to improve, this time stressing the declining trend in addition to their previous evaluation as being risk factors on the disinflation process.
• Second, they stressed the fiscal policy for the first time with an increased coordination, most likely as a reference on the minimum wage hike and public administrative price hikes in line with the interim inflation targets.
• Last but not the least, their new communication on the future level of the policy rate to be determined in a way to ensure the tightness required by the projected disinflation path, taking into account both realized and expected inflation, seems to be a preparation for forward guidance on a rule based approach.
• Highly likely below 2% monthly inflation realizations in November and December and the potential commitment that the CBRT has received on start of the year price adjustments seem to help the CBRT be ready for an easing cycle as of December.
• As we highlighted in our baseline, the CBRT will be required to start easing with very cautious steps since domestic demand has slowed down limitedly compared to much weaker aggregate supply and financial conditions albeit tight have started to weaken since summer, keeping inflation expectations high.

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