MNI CBRT Preview - November 2022: Another 150bp Cut in Sight

Executive Summary:

• The CBRT is largely expected to cut rates again by 150bp this month, leaving the one-week repo rate at 9.00%.
• This is in line with President Erdoğan’s calls for single-digit rates by year-end as the bank remains highly politically influenced and willing to look through inflation in excess of 85%.
• In October the CBRT delivered a larger-than-expected 150bp rate cut, the third consecutive cut in the cycle.
  
• The CBRT sees the accommodative financing conditions remaining of paramount importance as the economy loses further momentum. The October policy statement has laid the path for the final cut, disclosing that the CBRT “evaluated taking a similar step in the following meeting and ending the rate cut cycle”.

MNICBRTPrevNov22.pdf

Looking ahead, the possibility of further rate cuts beyond November is a dwindling tail risk, reflecting President Erdoğan’s unwillingness to tighten policy and the risk of signalling any doubt over his monetary policy approach.

Since March 2021, Governor Kavcıoğlu has overseen 850bps of rate cuts for the CBRT, clearly going against the trend of global monetary tightening. Markets perceive this as suggestive of political motivation during the current period of rapid inflation. The bank has argued that global economic weakness, domestic and international recession risks as well as waning foreign demand is necessitating further monetary loosening.