Petr Krpata, chief EMEA FX and IR strategist at ING, points out that their economists expect the Central Bank of Turkey to start an easing cycle today and to deliver a 200bp rate cut, given improvements in inflation and the new CBT governor’s remarks on 15 July.
“Given increasing concerns about credibility (with the appointment of the new governor), the risks are to the downside. Looking beyond today’s meeting, the CBT’s remarks on economic activity and inflation along with an emphasis on “a reasonable rate of real return”, the bank is signalling deeper cuts until the end of the year.”
According to analysts at Rabobank, the other central bank apart from ECB that will undoubtedly draw the market’s attention today is the CBRT as after President Erdogan sacked CBRT Governor Cetinkaya, the newly appointed Uysal faces a tremendous challenge at his first policy meeting today.
“Governor Uysal will have to walk a fine line. On the one hand he will have to announce a rate cut that satisfies President Erdogan’s expectations of markedly lower interest rates.”
“On the other hand, however, the cut cannot be so large that it undermines the fragile Turkish lira. Uysal may very well come in hot.”
“The abrupt dismissal of Cetinkaya has raised the probability that an Uysal-led CBRT could opt to slash interest rates by a few hundred basis points instead of a relatively measured 50-100bp cut.