MNI CBRT Review - Nov'24: A Dovish Tweak to Forward Guidance

Executive Summary

• The CBRT’s decision to keep the one-week repo rate on hold at 50% was in-line with unanimous consensus, however, slight tweaks to the Bank’s forward guidance have potentially geared policymakers towards a rate cut at the December meeting.
• While the overall hawkish tone of the statement was maintained, a new piece of guidance added this month implies that policy can remain restrictive even if rates are reduced.
• Among sell-side, there remains no clear consensus over when the first rate cut will be delivered, though most flag the possibility of a cut at next month's meeting. 

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

MNICBRTRevNov24.pdf

The key piece of forward guidance was unchanged - “The tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range” – but a new line was also added: "the level of the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path, taking into account both realized and expected inflation".

The new line implies that rates can remain restrictive even if policy rates are reduced – subject to a further decline in inflation. Owing to comments from President Recep Tayyip Erdogan’s earlier in the month - where he said interest rates will fall together with inflation - many sell-side analysts had already begun to speculate that the easing cycle could commence sooner than previously expected and so the latest dovish tweak to guidance will support this theory. Still, policymakers are clear that there are two main pre-requisites to easing – a reduction in both monthly inflation and inflation expectations.