MNI CBRT Review - November 2023: Pace of Tightening Unexpectedly Maintained

Executive summary:

• The CBRT delivered a 500bp key rate hike, taking the one-week repo rate to 40%.
• The central bank has signalled that it is nearing the end of its tightening cycle but reiterated that tightness will be maintained for as long as necessary to ensure price stability.
• The CBRT also stated that the pace of future tightening will be reduced, and therefore sell-side consensus is leaning toward a smaller 250bp hike in December, which would bring the year-end rate to 42.5%.

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

MNICBRTRevNov23.pdf

The key component of the November policy statement was the addition of the following: “The Committee assessed that the current level of monetary tightness is significantly close to the level required to establish the disinflation course. Accordingly, the pace of monetary tightening will slow down and the tightening cycle will be completed in a short period of time. The monetary tightness will be maintained as long as needed to ensure sustained price stability.”

While it was broadly expected that the tightening cycle was nearing its completion, the central bank tilted somewhat hawkish in that it is suggested that rates will remain higher-for-longer, given inflation remains elevated above 60% Y/Y. On the other hand, the policy statement also points to the impact of tighter monetary policy on financial conditions as well as the most recent signs of improvement in domestic inflation data.

Nevertheless, it remains to be seen whether commitment to price stability will be sustained given the approaching local elections in March 2024. 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.