MNI CBRT Preview - June 2024: On Hold But Hawkish

Executive Summary:

• The CBRT is widely expected to keep its one-week repo rate unchanged at 50%, presumably having reached the peak of its hiking cycle back in March.
• Nevertheless, further adjustments to the central bank’s policy toolkit may be forthcoming in order to manage liquidity and improve the transmission of monetary policy.
• Among sell-side, some analysts expect rate cuts to commence by year-end.

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

MNICBRTPrevJun24.pdf

At its previous meeting, the CBRT kept the one-week repo rate unchanged at 50% and retained the threat of tighter policy should inflation expectations warrant - thereby meeting market expectations and retaining a hawkish stance. May’s policy statement retained references to hawkish risks to the outlook, specifically highlighting the increase in consumption goods imports and the subsequent impacts on the current account balance. These provide not only a key indicator for the central bank but a major measure with which Simsek is gauging the success of his policies aimed at financial stability and reducing risk premia on Turkish assets over time.

Since the previous decision, inflation in May surprised to the upside, rising from 70.2% Y/Y to 75.8% Y/Y, primarily due to base effects in utility prices. Given the increase would have been more moderate net of base effects, the print is unlikely to prompt a change in the central bank’s policy stance at this juncture. Indeed, inflation expectations for year-end in the latest CBRT survey remained unchanged at 43.5% Y/Y while two-year-ahead expectations fell further to 21% Y/Y.