MNI CBRT Preview - October 2022: Another 100bp Cut Seen in Next Step Toward Single Digits

Executive Summary:

• Following the unanticipated 100bps rate cut in August, the CBRT are firmly expected to again cut the policy rate by 100bps for the third consecutive month.
• This would bring the one-week repo rate to 11.00%, in line with the majority of sell-side views.
• This decision comes despite inflation accelerating for the 16^th consecutive month to a hot 83.45% in September and the lira’s value eroding further.
• The CBRT maintains an unorthodox approach to monetary policy, seen persisting for the foreseeable future, with President Erdoğan’s call for single-digit rates into year-end likely to materialise.

MNICBRTPrevOct22.pdf

Governor Kavcıoğlu has overseen the CBRT’s easing cycle of 600bps of rate cuts since appointment in March 2021. The October meeting will be essential in signalling the extent to which a front-loading approach will be taken to ease policy.

With headline inflation soaring to a fresh 1998-high of +83.45% y/y in September, Turkey remains a global outlier in their accommodative interest rate approach. Prices accelerated by +3.15% m/m alone in September, quickening from +1.46% m/m in August. The previous August policy statement again reiterated that inflationary pressures were caused by energy prices due to the geopolitical landscape, alongside supply/demand imbalances and labour market rigidity. Yet eye-watering core inflation of 68.09% and the uptick in October’s year-end and 12-month inflation expectations see domestic price pressures continue to see little relief as they vastly outpace the CBRT’s official CPI target of 5%.