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Minimal CPI Reaction Speaks to CBRT's Current Indifference to Pricing Data

TURKEY
  • USD/TRY saw very little change following higher headline and core CPI this morning, as the premature nature of the CBRT's easing cycle becomes more evident against still proinflationary domestic pricing dynamics
  • The minor reaction ultimately reflects the overtly political nature of decision-making in the CBRT's current reaction function, instead of being determined by market conditions as the CBRT delivers a "revision" of its current stance.
  • The current indifference to CPI data is a function of the key rate to Core CPI differential (1.02% vs 2.24% pre-100bp cut), providing space for a readjustment of rates lower, although this will likely be temporary should the gap narrow further in October.
  • On this front, another rate cut in October reduces this margin of safety even further – which may see Kavcioglu pushing for hold in October with the expectation that the November-December period brings more concretely favourable base effects.
  • Here, uncertainty remains notably high with regard to scope for another 50-100bp cut at this next meeting or whether the CBRT will wait and deliver another 100bp cut in November with the sell-side split over the cut pipeline into year end.
  • This is due to the inordinate amount of political influence in the CBRT's reaction function which makes this next decision extremely hard to telegraph.
  • Recent chatter in Turkey shows that Erdogan is already displeased with Kavcioglu's inability to deliver lower inflation (in line with his promises for an August peak) and his poor English skills which have seen him unable to attend various meetings.
  • This places him on the backfoot and at risk of replacement, should he buck Erdogan too vehemently – making Erdogan's influence inordinately dominant in near-term decision-making.
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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