MNI CBRT Preview - December 2023: Slowing Down as Peak Nears

Executive summary:

• Further tightening from the CBRT is expected this week, with the benchmark one-week repo rate widely expected to be raised by 250bps to 42.50%, marking a slowdown in pace from the 500bp moves in November, October, September and 750bps in August.
• Given that inflation is still running above 60% Y/Y, additional tightening may still be required, though recent central bank communication has signalled that the end of the tightening cycle is nearing.
• Of the sell-side views we have previewed in this document, all are expecting a 250bp rate hike.

See the full MNI preview, with a summary of sell-side analyst views, here:

MNICBRTPrevDec23.pdf

Since the previous MPC meeting, CPI jumped a further 3.28% M/M in November, with the year-on-year figure crossing at 61.98% compared to 61.36% the month prior. Core inflation rose marginally from 69.76% Y/Y to 69.89%. However, as per the CBRT’s most recent survey of market participants, 12-month inflation expectations eased from 43.9% in November to 41.2% in December, marking the second consecutive decline and offering the central bank room to scale down rate hikes from its previous 5ppt moves as inflation momentum begins to show signs of abating.

It remains to be seen whether commitment to price stability will be sustained given the approaching local elections in March 2024. Markets will be concerned over whether the vote leads to any potential shift in President Erdogan’s stance on monetary policy, most notably over whether a low-interest environment will be favoured again. For now, sustained lira weakness and elevated inflationary pressure suggests another tightening move is inevitable at this juncture. However, slightly more-favourable developments regarding inflation expectations and success in increasing savings in TRY will likely facilitate the slowdown in tightening pace.