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CBRT's Downplays Core CPI Risks, 1m Options Implied Probability of USD/TRY >9.00 at 43.9%

TURKEY
  • Comments this morning from CBRT Gov Kavcioglu alluding to expectations for a moderation in 'transitory' core CPI factors have raised concerns about more easing in the pipeline as we approach the next CBRT meeting (21 Oct).
  • Overall, Kavcioglu's comments were broadly dovish, downplaying dollarization, Inflation and supply-driven risks to the outlook against a backdrop of central banks pursuing tighter policy – especially in the EM space.
  • This places TRY at risk of further depreciation should the CBRT cut rates further in October into oncoming core CPI headwinds which rose to +16.98% in August vs the key rate at 18.00% (1.02% differential).
  • Although USD/TRY has seen upside momentum dissipate somewhat since 01 October, option implied probabilities still see a 43.9% chance of USD/TRY trading at above 9.00 on a 1m basis – and has remained mostly stable around that number since the prior CBRT meeting.
  • Expectations remain split at this juncture as to whether the CBRT will ease (-50-100bp) at its next meeting or wait for more favourable core CPI base effects in November (-100bp) to make the cut more palatable. However, these recent comments highlighting transitory factors and expectations for core to drop may be the prelude to another step lower in October with the core-key rate differential at 1.02%.
  • Nevertheless, the decision remains highly uncertain due to the outsized influence of Erdogan's political presence in the CBRT's reaction function.
  • Moreover, local rumours suggest Erdogan's frustration with Kavcioglu for not being able to control inflation and his poor English skills is only increasing – placing him even more at risk of replacement should he fail to bow to the president's demands.
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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