As expected, the Central Bank of the Republic of Turkey (CBRT), kept the key interest rate unchanged at 19%. The Research Department at BBVA expects the CBRT to start an easing cycle only very gradually in October, given the rising upside risks on inflation outlook and potentially increasing global yields.
Key Quotes:
“The Central Bank of Turkey (CBRT) maintained the policy rate (one-week repo) at 19% in line with the expectations. The decision text is almost the same apart from the more positive expectations on the current account balance and the likelihood of a more volatile inflation outlook in the near term.”
“Given the increased upside risks, we expect consumer inflation to hover near 18.5% till November before declining to 16% at the end of the year. Rising global inflation and inflation expectations and their potential effects on the markets will also be important for especially the EMs. So, we expect the CBRT to start an easing cycle only very gradually in October and end the year with 17.5% policy rate.”
“Worsening inflation outlook and potentially increasing global yields when getting close to the FED tapering will require the CBRT to be more cautious, which the CBRT tries to manage right now by trying to eliminate any early rate cut expectations.”