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CBRT Rate Decision in Focus, Monetary Policy Effectiveness Criticised

TURKEY
  • The Turkish Economic Policy Research Foundation (TEPAV) write in a note that the policy rate has lost its functionality within its current definition. In its December Monetary Policy Assessment note, it was pointed out that the Central Bank funds banks mainly through TRY swaps against foreign currency with lower interest rates, instead of the weekly repo rate. TEPAV economists pointed out that this practice not only reduces the effectiveness of monetary policy but also damages the principle of transparency.
  • They add that the practice "caused deposit interest rates not to tighten sufficiently, thus disrupting the strengthening of the TRY appreciation trend." See the full note here.
  • Attention turns to the CBRT rate decision later today (1100GMT/1400 local time) where further tightening is expected with a 250bp hike to the one-week repo rate, taking it to 42.50%. That would mark a slowdown in pace from the 500bp moves in November, October and September and 750bps in August. See the full MNI preview, with a summary of sell-side analyst views, here.
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