TURKEY: MNI CBRT Preview - August 2024: Alternate Tools Still in Focus

Executive Summary:

• The CBRT is widely expected to keep its one-week repo rate unchanged at 50% and maintain a hawkish tilt to its guidance. 
• The Bank have and will likely continue to make further adjustments to its macroprudential toolkit in order to drain excess lira liquidity to supplement its tight stance on monetary policy. 
• Among sell-side, some analysts see rate cuts commencing at the November meeting.

See the full preview, with a summary of sell-side analyst views, below:

MNICBRTPrevAug24.pdf

Central bank comms have continued to tilt hawkish over the past month. Speaking in an interview at the end of July, Deputy Governor Cevdet Akcay said the central bank is not even considering a rate-cutting cycle at this time because easing too early could reignite inflation. Meanwhile, Governor Fatih Karahan reiterated that the CBRT will maintain a tight monetary stance until they see a significant and sustained decline in monthly inflation and inflation expectations converge to forecasts. 

In the latest of a series of steps designed to drain excess lira liquidity from the financial system, the central bank has started placing lira buying orders at the nation’s main clearing house at the overnight borrowing rate of 47%. The move aims to mop up lira liquidity in a bid to prevent deposit rates from falling – which could compromise the Bank’s tight stance on monetary policy. Previous steps taken to tackle the issue – which has largely been driven by significant foreign inflows – include increasing required reserves ratios. But given these ratios are already at historic highs, the CBRT have turned to alternative measures. Further adjustments on this front will be watched in the coming weeks.