CBRT Cites Transitory CPI Factors, Commercial Loan Contraction as Key behind Cut Decision

No real explanation for the -100bp cut in the CBRT statement other than:

• The tightness in monetary stance has started to have a higher than envisaged contractionary effect on commercial loans
• Supply and demand side factors driving inflation are transitory
• Macroprudential policy framework has been strengthened to curb personal loan growth
• Committee evaluated the analyses to decompose the impact of demand factors that monetary policy can have an effect, core inflation developments and supply shocks
• A revision in monetary policy stance is needed

ANALYSIS:

• As noted prior to the decision, this is a major concern for CBRT credibility and autonomy
• Kavcioglu may have been threatened with dismissal if he didn't bring rates down and the net result has been a -100bp cut broadly against market conditions - perpetuating the exact TRY instability that compounds the inflation issue and dollarisation keeping inflation elevated
• As highlighted, the 8.8008 level is holding for now, but looks vulnerable with 9.00 the next topside milestone in the coming days