Hawkish Erdogan Comments Drive Concern Over CBRT Autonomy in Pivotal Meeting Today

• Local & USD rates Unch this morning, following a sustained move lower across the curve yesterday.
• We can expect more gains in today's session if the CBRT deliver a hike sufficient to buy credibility from the market, however, a smaller than expected hike or resumption of stealth tightening through measures other than the 1w repo may see a repricing higher to October highs.
• TRY opens on the front foot vs EUR & USD, with USD/TRY taking out the 7.70 level in what appears to be an idiosyncratic move. Focus today will be on the size of hike delivered, and tone regarding a hiking cycle or one-off cut to determine whether Erdogan's shot across the bows on the impact of high interest rates translates into more of the same traditional political pressure on Governors to keep rates low - resulting in a smaller than expected hike (+475bp median exp).
• As discussed in the MNI preview, this is a pivotal meeting that could see a paradigmatic shift if monetary policy is Agbal is seen to have full autonomy and be pushing towards policy orthodoxy.
• Sub-300bp hikes will most likely see USD/TRY reprice higher towards 7.80-8.00, while 425bp or higher will drive a move below 7.50, but most likely not breach the 7.30 handle before moderating back to around fair value at 7.50 over the next 3-months.

Local news

• Surprisingly, Putin supports Turkish actions in the Karabakh, saying "its actions may be qualified in any way, but it cannot be accused of violating international law", noting that Turkey was a Minsk group member from the start, but was never granted co-chair status. Says EU states, France & Germany, have fought in the past and cooperate now - same can be true for Turkey & Russia - Hurriyet Daily