MNI CBRT Review - July 2024: On Hold, Liquidity Tools in Focus

Executive summary:

• The Central Bank of Turkey left its one-week repo rate unchanged at 50%, a decision in-line with unanimous sell-side consensus.
• The policy statement offered few surprises, maintaining the hawkish stance which has been present in previous editions. Accordingly, greater market focus is placed on the various adjustments to the tools the central bank use to manage liquidity.
• Among sell-side, views are mixed over when the easing cycle will commence.

See our full review, with a summary of sell-side analyst views, here:

MNICBRTRevJul24.pdf

The CBRT left its one-week repo rate unchanged at 50%, offering few surprises in its communication. The central bank said that while underlying inflation registered a “notable” decline last month it remains both highly attentive to inflation risks and ready to act “decisively” to reach the 5% medium-term target. It added that a “relatively limited” temporary increase in monthly inflation is expected in July due to a combination of tax, administered price and supply-side adjustments which are “beyond the control of monetary policy.”

In a note separate to the rate decision sent to banks, the CBRT said it might hold FX and gold swap auctions to sterilize lira liquidity. Meanwhile, according to BloombergHT sources, it has also terminated swaps with local lenders via a quotation method which provided liras to financial institutions in return for FX. The changes mark the latest in a series of measures the central bank have been using to curb excess lira liquidity and are ultimately designed to reverse the recent decline in deposit rates, thereby supplementing its tight stance on monetary policy.