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Local Sell-Side Desks on Recent Macroprudential Adjustments and the Upcoming CBRT Meeting

TURKEY
  • YF Securities expect a 250bps hike tomorrow. Ongoing upside risks on the inflation outlook, deterioration in inflation expectations and recent pressure on EM currencies are the main drivers of their expectation. They say the importance of the meeting has increased after the CBRT’s decision to support TRY deposits instead of FX protected deposits.
  • Regarding the CBRT’s latest regulation, they say it might result in gradually higher TRY deposit rates and further pressure in TRY spreads. Margins of the banking sector might continue to remain under pressure, while in the short term, they expect negative market reaction for the banking sector (though the negative impact on margins might be mitigated by the potential increase in policy rate).
  • Following the changes to the CBRT’s FX tools, OYAK Investments expect a substantial rise in TRY deposit rates while KKM rates are likely to decline sharply, which should reduce the attractiveness of the scheme. They say the demand for foreign currency is likely to increase slightly following the decision, but the determining factor will be where TRY deposit rates go. Moreover, a significant increase is likely to be realised in loan interest rates. Additionally, gross reserves will increase by USD7bln after the FX RRR increase, but no change will be seen in net reserves, they say.
  • The decision is expected to lower Turkey’s risk premium and accelerate foreign portfolio flows in the medium term, but is likely to slow down GDP growth, they say. Following the steps taken, the upcoming MPC decision will be of more of importance for markets.
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