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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Executive Summary:
- CBRT seen cutting rates by 100bps for second consecutive meeting
- Board seen under considerable political pressure to alleviate pressures of tight policy
- TRY has weakened considerably in the lead-up, underperforming all other global currencies
The CBRT are broadly expected to reduce its one-week repo rate by 50-100bps this week with visible signs of frustration from Erdogan bolstering the political influence component of the bank's 'revisionist' stance on policy. This comes against a backdrop of rising inflationary pressures on a global scale as the CBRT loosens its policy setting into oncoming CPI tailwinds.
Both headline and core CPI rose in September, printing y/y at 19.58% & 16.98% respectively (vs 19.25% & 16.62% prior), while PPI dipped slightly to 43.96% vs 45.52% prior. Food prices and supply-induced factors were highlighted as the key drivers of the higher print but were labelled as transitory in numerous statements by CBRT governor Kavcioglu. Here, we see pricing data being a less dominant driver in the decision-making process under the bank's new 'revisionist' framework, with rising core metrics doing little to deter policymakers from easing directly into more pronounced domestic and global inflationary headwinds.
New MPC appointments reinforce dovish tilt
In addition to the recent dovish pivot to core CPI as the benchmark for the CBRT's reaction function, Erdogan has recently installed two new MPC members after dismissing three rate cut dissenters late last week. Research shows at least one of the new additions, Yusuf Tuna, favours ultra-dovish policy and a synchronous approach to government alignment on monetary policy. In 2014, Tuna said Turkey had been "drowning in the grip of high interest rates for years" with big hikes being fine in theory, but incorrect in practice. He also noted that the CBRT must act in line with the government's wishes - taking on a subordinate role. In 2014 he also asserted that a 200-300bp rate cut would not hurt the lira, given Turkey's high degree of political stability. This leaves the CBRT with a relatively inexperienced MPC with little capacity/inclination to temper Erdogan's dovish policy ambitions.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.