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CBRT Minutes: 'Transitory' Price Factors, Crimped Commercial Lending Behind Dovish Tilt

TURKEY
  • Nothing majorly revealing from the CBRT minutes with the bank firmly reiterating its position on the 'transitory' nature of supply/demand pressure causing short term volatility risks in pricing dynamics
  • Food price inflation & non-alcoholic beverages continued to be a key source of upside pressure, alongside other unprocessed foot items due to drought and supply bottlenecks
  • The CBRT reiterated that a revision in policy was needed and that the tight policy stance was having adverse effects on commercial lending.
  • Additionally, the CBRT notes that the current "sufficiently tight" policy stance will ensure the return of inflation to its downward trend once temporary effects disappear, will serve as a significant buffer against external and temporary volatilities in the context of inflation expectations, the pricing behavior and financial market developments.
  • Overall, no response from TRY, but with headline CPI expected to tick higher towards 19.5-19.70% markets will remain concerned about the CBRT's dovish tilt – even though core CPI is set to moderate slightly to 16.66% from 16.76%.
  • The major focus on 'transitory' factors and its "sufficiently tight" stance sets up the CBRT for more cuts in the coming meetings, but the depth and speed still remains highly uncertain, given the extent of political interference in the reaction function – which runs counter to traditional evaluations of the prevailing market conditions.
  • Most sell-side institutions have lifted their year-end inflation targets to 16-17% vs the CBRT's estimate at 14.1% and anticipate higher passthrough to inflation via a weaker TRY and elevated second-round effects from de-anchored expectations.
  • Year end targets for the key rate stand around 16.50-17.00%, but most institutions provide the caveat that this number remains highly uncertain.
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market NewsHomepage
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market NewsHomepage

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