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MNI CBRT Preview - September 2022: Expected Unchanged Despite August Surprise

Executive Summary:

  • CBRT is expected to leave rates at 13.00%, with risks skewed to the downside
  • The bank remains under considerable political influence and is willing to look through inflation in excess of 80%
  • Looking ahead, rate cuts are the more likely tail risk, with Erdogan appearing unwilling to tighten policy ahead of an election campaign next year

Full piece here: MNICBRTPrevSep22.pdf

Since March 2021, Governor Kavcıoğlu has overseen 600bps of rate cuts for the CBRT, clearly going against the trend of global tightening. Markets perceive this as suggestive of political motivation underpinning this unorthodox approach during a rapid inflationary phase. The August 100bp repo-rate cut contradicts the 'Liraization' strategy as it pushes real yields to deeper negative territory. This should continue to weigh on the TRY in the medium term, in line with the depreciation experiences in economies with deep negative real rates this year.

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