MNI CBRT Review - October 2021: Further (Smaller) Cuts Likely

Executive Summary:

• CBRT delivered sizeable surprise in cutting rates by 200bps
• Statement warns of "limited room" for further downward adjustments
• TRY sell-off accelerates, 10.00 handle could be approaching in USD/TRY

MNICBRTRevOct21.pdf

CBRT front-load easing, but further (smaller) cuts likely before year-end

The bank surprised both markets and analysts by cutting rates by an impressive 200bps, putting the policy rate at 16.00% and the lowest level since November last year. Markets had been priced for a rate cut of 50-100bps, so the larger-than-expected cut prompted a sizeable adjustment for TRY and local bond markets, with USD/TRY setting a course for the 10.00 handle.

While the bank made only minor tweaks to their economic outlook in the accompanying policy statement, the committee introduced new guidance on rates, stating that "supply-side transitory factors leave limited room for the downward adjustment to the policy rate." The introduction of this phrasing may suggest that while an easier policy bias remains, it's less likely that the bank will be cutting rates by a similar margin in the remaining meetings of 2021.