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MNI CBRT Preview: July 2021 - CBRT to Hold at 19%, Rising CPI Tempers Dovish CBRT Reaction Function

Turkey Central Bank

Executive Summary:

  • CBRT is expected to keep its one-week repo unchanged at 19.00% this week.
  • Headline CPI snapped three successive downside surprises, printing at 17.53% y/y - forcing institutions to boost year-end inflation targets and pare cut cycle projections for 2021.
  • Here, the reduction of dovish drivers in the CBRT reaction function and limited space to cut rates in line with Erdogan's demands without destabilising the lira.
  • Kavcioglu will need to deliver over and above previous guidance to elicit a hawkish reaction from the market and instill confidence in his ability to deliver market-appropriate policy, should inflation continue to trend higher.
Full Preview Here:

CBRT Preview 14.07.21.pdf

The CBRT is broadly expected to keep its one-week repo rate unchanged at 19% this week with overshooting pressures in CPI limiting its ability to deliver lower rates without destabilising the lira - contrary to Erdogan's wishes. June's upside surprise at 17.53% precipitated not only a swathe of year-end inflation revisions, but also reduced/delayed 4Q21 cut cycle targets among sell-side institutions as analysts pared dovish bets on the CBRT.

Figure 1:CPI, PPI Accelerate in June, Reducing Scope for Premature Cuts

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