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HSBC's Base Case Scenario Forecasts No Change In Policy Rate This Year

TURKEY
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  • The bank said that the underlying inflation trend improved modestly in April, but continued to identify several upside risks, including high and sticky services inflation, high inflation expectations, geopolitical risks, and elevated food prices. The CBRT maintained its previous guidance that further tightening can be delivered if there is a significant and persistent deterioration in the inflation outlook.
  • The monetary policy committee's base case appears broadly unchanged. The MPC believes that the tightening already delivered, slowing domestic demand growth, real TRY appreciation, and improving inflation expectations will, together, lead to significant disinflation in the second half of the year.
  • HSBC’s base case scenario continues to forecast no change in the policy rate this year, but upcoming CPI releases are likely to be critical.
  • If the improving trend seen in April persists, the policymakers are likely to be more comfortable about keeping interest rates on hold, which HSBC believe is their preference. But if there is no further improvement in the momentum measures by June (i.e., three months after the March hike), HSBC think discussion will return to the need for further tightening.
  • That said, the 500bp March hike was in large part a response to FX weakness, and in an environment where inflationary pressures remain high, but TRY is well supported, HSBC think the CBRT would be more likely to remain on hold.
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  • The bank said that the underlying inflation trend improved modestly in April, but continued to identify several upside risks, including high and sticky services inflation, high inflation expectations, geopolitical risks, and elevated food prices. The CBRT maintained its previous guidance that further tightening can be delivered if there is a significant and persistent deterioration in the inflation outlook.
  • The monetary policy committee's base case appears broadly unchanged. The MPC believes that the tightening already delivered, slowing domestic demand growth, real TRY appreciation, and improving inflation expectations will, together, lead to significant disinflation in the second half of the year.
  • HSBC’s base case scenario continues to forecast no change in the policy rate this year, but upcoming CPI releases are likely to be critical.
  • If the improving trend seen in April persists, the policymakers are likely to be more comfortable about keeping interest rates on hold, which HSBC believe is their preference. But if there is no further improvement in the momentum measures by June (i.e., three months after the March hike), HSBC think discussion will return to the need for further tightening.
  • That said, the 500bp March hike was in large part a response to FX weakness, and in an environment where inflationary pressures remain high, but TRY is well supported, HSBC think the CBRT would be more likely to remain on hold.