MNI CBRT Review: February 2023 - Leaning Hawkish Despite Another Cut

The accompanying press release indicated that current rates are now “adequate to support the recovery in the aftermath of the earthquake”, making for a relatively hawkish statement. Unsurprisingly, USD/TRY reacted very little to the rate cut as the government’s continued intervention provides a backstop to further lira depreciation ahead of the elections.

There is unlikely to be a significant pivot in policy until after the Presidential and Parliamentary elections, with Erdogan likely looking for more market and financial stability in the interest of his re-election bid, though some sell-side analysts warn of further cuts in the coming months. Opposition officials have said that they will name a unified contender in early March ahead of elections which are likely to be held on either May 14 or June 18. Beyond this, the CBRT outlook is less clear. Sell-side analyst views range from an acute market-forced adjustment in the FX rate to emergency rate hikes as high as 25%.