Turkey: CBRT to further tighten monetary policy by 100bps - TDS

Analysts at TDS expect the CBRT to further tighten monetary policy by 100bps and in particular, they expect the 1w Repo Rate to be hiked to 17.5%, O/N Lending Rate to 19% and O/N Borrowing Rate to 16%.

Key Quotes

“The Late Liquidity Window rate, instead, should remain unchanged at 19.50%. The consensus is split between expectations for a hold and tightening, with a slight majority in favour of the former. Amongst the reasons that justify a hike today, inflation is the most evident one. May CPI accelerated to 12.15% Y/Y from a prior 10.85% mostly on higher oil prices and FX pass-through.”

“Furthermore, ahead of the 24 June elections, the CBRT will likely want to avoid that a lira sell-off reflects negatively on the government and, thus, higher rates will help stabilize USDTRY. This argues for some degree of tightening tough it’s difficult to say how much exactly. With 100bps of tightening, USDTRY is likely to rally and consolidate stably below 4.60. With no tightening at all, USDTRY could move above that mark. However, recent comments from the government read like partial backpedaling from last week's commitment to hike on higher inflation, and skew the risks for our forecasts firmly to the downside.”