MNI CBRT WATCH: Feb Data Supports 250Bps Cut, Slowdown Seen
MNI (LONDON) - The Central Bank of the Republic of Turkey is expected to lower its key 1W Repo rate to 42.5% on Thursday, but a weaker pace of disinflation ahead and still-high inflation expectations mean easing is likely to slowing from here on.
While January’s inflation was surprisingly high at 42.12%, February’s 39.05% was a downside surprise. With monthly inflation also coming in low - down from 5.03% to 2.27% over the same period - policymakers will view another 250bps of cuts as justified.
They will remain attendant to upside risks to the outlook, in particular from services price stickiness, with smaller cuts possibly preferred in April and June. (See MNI EM INTERVIEW: Turkey Inflation Too High For 250Bp Cut -Cangoz)
Communication will doubtless remain hawkish, especially given the recent upwards revision - from 21% to 24% - of the Bank’s interim inflation 2025 target, and the expectation that real rates will remain in positive territory for the remainder of the year. Household and corporate inflation expectations will also be key for its calculations.
(See MNI EM INTERVIEW: Top End of CBRT Target Range In View - Ex-DG)
December’s statement saw the removal of a reference to the CBRT’s maintaining a tight monetary policy “until a significant and sustained decline in the underlying trend of monthly inflation is observed and inflation expectations converge to the projected forecast range,” in favour of “until price stability is achieved via a sustained decline in inflation.”
The decision earlier this month to lower the growth limit for foreign currency loans and narrow the scope of those loans exempted, was described by CBRT as supportive of its tight monetary stance.