MNI CBRT Review - December 2023: Cycle Nears Completion

Executive summary:

• The CBRT delivered a 250bp key rate hike, taking the one-week repo rate to 42.5%.
• The central bank stated that the tightening cycle will be completed “as soon as possible”.
• The central bank had signalled in November that it would moderate the pace of additional rate hikes moving forward, and therefore market expectations were firm for a sub-500bp move.

MNICBRTRevDec23.pdf

Key from the December policy statement is the following paragraph: “Assessing that monetary tightness is significantly close to the level required to establish the disinflation course, the Committee reduced the pace of monetary tightening. The Committee anticipates to complete the tightening cycle as soon as possible.” This largely reiterates rhetoric from Governor Erkan earlier in the week, who said the Bank’s tightening cycle is approaching its end.

Nevertheless, the statement retained the following line from the November edition, maintaining a somewhat hawkish bias by signalling that rates will potentially stay higher for longer: “The monetary tightness will be maintained as long as needed to ensure sustained price stability”. It remains to be seen whether the central bank’s commitment to price stability will be sustained through 2024 given the approaching local elections in March. Markets will be concerned over whether the vote leads to any potential shift in President Erdogan’s stance on monetary policy, most notably over whether a low-interest environment will be favoured again amid potential upside risks to inflation posed by the size of the minimum wage hike for 2024 among other factors.