Turkey: Decisive rate hike – Nordea Markets

Anders Svendsen, Research Analyst at Nordea Markets, notes that the CBRT has hiked the repo rate by 125bp to 17.75% and this move further strengthens the view that the CBRT has been given some flexibility to pursue it inflation target.

Key Quotes

“Risks remain on the horizon, though.”

“We had expected a move by 100 bp while the consensus expected the CBRT to be on hold.”

“First the CBRT hiked by 75bp, then followed an emergency hike of 300bp, and last week the CBRT simplified its monetary policy framework to resume using the repo rate as the main policy rate. Today, the CBRT further repositioned itself as having enough flexibility to pursue its inflation target.”

“For now, we believe that the CBRT’s moves will be enough to turn the trend in USDTRY (EURTRY) and strengthen the TRY somewhat in the coming days. Risks remain on the horizon, though. The presidential election is near on the horizon, inflation will increase further due to lagged effects of the massive TRY weakening, and the USD exposure of Turkish non-financial companies will not go away anytime soon. Thus, we still expect lots of volatility going forward and the CBRT might need to do more.”