Turkey: Central bank to keep rates unchanged, TRY remains vulnerable - TDS

Analysts at TDS, expect relatively little impact from the Turkey central bank meeting given their consensus view that the repo rate will be held at 24% and that monetary policy guidance in the press statement will remain pretty much unchanged.

Key Quotes: 

“Since the last meeting on 25 October, when the MPC kept the repo rate on hold at 24.0%, there have been some positive developments in Turkey regarding the inflation outlook. The Turkish lira has appreciated by 5% against the US dollar and oil prices in lira terms have fallen by about 25%. This has helped CPI inflation, which peaked at 25.2% Y/Y in October, fall back to 21.6% in November.”

“We do not think that the MPC would dare cutting rates, as this would run the risk of triggering a new lira sell-off. Inflation still remains very high, and, although a further modest fall is likely in December, base effects will probably push it higher again early next year. And real rates do not look that high, particularly given how far current inflation is above the notional 5% target.”

“So in line with the unanimous consensus we expect the MPC to keep the benchmark one-week repo rate on hold at 24.0% at Thursday's (13 December) meeting. “

“The more interesting question is whether the MPC are going to change their monetary policy guidance in the press statement.”

“In our view the Turkish lira still remains vulnerable to a new sell-off. While it is true that the current account is shrinking and we are seeing some fall in inflation, the flip side to this is that the economy is slowing and in fact next year we expect negative growth.”