The CBRT surprised market expectations by delivering a 500bp hike to its one-week repo rate.
The Central Bank of Turkey delivered an unexpected rate hike, raising its one-week repo rate by 500bps to 50% against broad consensus for rates to be left unchanged. Nevertheless, a minority of analysts had foreseen a rate hike at this juncture, while most flagged the risk of a hawkish surprise given the deteriorating position of Turkey’s FX reserves, stubborn inflation and increasing pressure on the lira. Accompanying the rate hike, the CBRT announced that it is adjusting its monetary policy framework by implementing a wider +/-300bp interest rate channel around the repo rate (from +/- 150bps previously).
Looking forward, of the post-CBRT sell-side views we have seen, no analyst foresees an additional hike until at least H2, though the central bank left the door open for further tightening should inflation dynamics warrant such a decision. The local elections at the end of March are seen as having little effect on the trajectory of Turkish rates.
The CBRT kept its tightening bias and reiterated that the current monetary policy stance will be maintained until there is a "significant" and "sustained" decline in inflation momentum, while inflation expectations must be converged to the projected forecast range. The forward guidance was also hawkish as the Bank kept the door open for further rate hikes by stating that monetary policy stance will be tightened in case of a significant and persistent deterioration in inflation dynamics – this guidance was maintained from the February policy statement.
