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CACIB See High TRY Carry in Lead Up to Elections, Despite Risks to Monetary Policy

TURKEY
  • Speaking on Wednesday night in an interview with state broadcaster TRT, President Erdogan pledged further rate cuts ahead of his re-election bid this May. “There is a direct correlation between interest rates and inflation,” Erdogan said on Wednesday, citing the slowdown in Turkey’s consumer inflation as proof that his theory holds true.
  • The comments come just two weeks after the CBRT held rates at 9.0% for the second consecutive meeting and have ramped up odds of a rate cut at the Feb 23 meeting. In its January policy statement, the CBRT removed the sentence stating that the current policy rate was adequate considering the increasing risks regarding global demand. The MPC also refrained from offering forward guidance.
  • Nevertheless, CACIB say that against the backdrop of decreasing inflation, authorities will continue to control and limit the depreciation of the TRY, which will therefore display a combination of high carry and limited volatility until the election. CACIB add to their TRY overweight at the prevailing USD/TRY level of 18.8130.
  • CACIB estimate that sequential inflation has stood at about 35% over the past few months and due to base effects, headline inflation should converge towards sequential inflation. They see inflation possibly reaching close to 35% in April (release due about ten days before the May election).
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