On Thursday, the Central Bank of the Republic of Turkey will announce its decision on monetary policy. Analysts at Wells Fargo, expect key interest rate to remain on hold at 19%. They warn that if inflation remains high and President Erdogan looks to replace central bankers, the lira could suffer another large depreciation.
Key Quotes:
“The unpredictability of monetary policy in Turkey always makes for interesting rate decisions. To that point, the Turkish Monetary Policy Committee will meet next week to decide on interest rates amid another sharp rise in inflation and heightened rhetoric from President Erdogan. While we expect interest rates to be held steady next week, President Erdogan has recently become more outspoken regarding his views on monetary policy and the path for policy rates. Historically, President Erdogan's monetary policy rhetoric has resulted in elevated currency volatility or a reshuffle of central bank policymakers.”
“Rising inflation has typically been coupled with Erdogan calling for interest rate cuts, an unorthodox view. Should rates be left on hold and inflation continue to rise, Erdogan could become more aggressive and possibly look to replace central bankers with a team more likely to implement his views. Should this scenario unfold, we would expect another large depreciation in the lira and for inflation to continue to trend higher over time.”
