MNI CBRT Review- September 2021: Erdogan Pressure Sees Cut Cycle Brought Forward

Executive Summary

• CBRT Reduces key rate -100bp to 18.00% (surprise vs near-unanimous hold consensus), signalling the start of an easing cycle ahead of schedule and against market conditions
• Decision reflects political interference from Erdogan and a concerning lack of credibility and autonomy for the CBRT
• Forward guidance was removed from the statement with easing justification focused on "transient" CPI pressures and concerns about curtailed commercial lending ·
• De-anchored expectations, renewed dollarization, and higher FX passthrough to inflation and potential reserve burning and unconventional policy measures may be on the menu as TRY weakness ensues

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CBRT Review 24.09.21.pdf

The CBRT wrong-footed markets yesterday by cutting rates by -100bp against a near-unanimous consensus for a hold as Governor Kavcioglu finally caved to political pressure from Erdogan to lower the key rate. This is a massive blow to CBRT credibility and autonomy with the reasons for the cut being questionable at best amid rising inflation pressures which were simply deemed as being transient, alongside curbed commercial lending necessitating a revision of the policy stance. In terms of policy, the removal of forward guidance makes the CBRT's next moves incredibly hard to telegraph, especially given that the decision-making process no longer relies of rational central bank thought processes.