TURKEY: JP Morgan Adjust Policy Rate Call Following September CPI
The much higher than consensus September CPI print (+3.23% m/m vs. +2.58% expected) casts doubt over the CBRT’s monetary policy easing plans. Last month, it slightly slowed the pace of rate cuts to 250bps, bringing the one-week repo rate to 40.50%. The Bank underlined its data dependent approach, noting that any step adjustments to the policy rate will be decided meeting-by-meeting in response to inflation developments. The central bank meet next on October 23.
- JP Morgan now expect the CBRT to cut its policy rate by 150bps (previously 200bp) to 39%. They say the higher-than-anticipated CPI and upside risks to inflation due to the impact of the drought on food prices, coupled with stronger growth momentum, suggest the CBRT is likely to downsize rate cuts to 150bps, then to 100bps in December.
- JPM add that the CBRT is likely to keep the policy rate well above headline CPI inflation and use the TRY deposit share target as a macroprudential tool to prevent dollarization. JPM expect 100bp cuts to the policy rate at each MPC meeting in 2026, ending the year at 30% (previously 28%).
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GILTS: /STIRS: No Reaction To Hawkish Lombardelli View
GBP STIRS & the front end of the gilt curve are unreactive to the initial comments at the BoE TSC hearing.
- Deputy Governor Lombardelli’s hawkish dissent was centred on her outlook for inflation, while both Lombardelli and fellow hawkish dissenter Greene have given some meaningful weighting to food inflation.
- Lombardelli’s comments surrounding neutral rate levels also screen a little hawkish.
- At the other end of the spectrum, dovish dissenter Taylor reaffirms his position at that end of the spectrum (he initially voted for a 50bp cut in August).
- The degree of hawkish repricing witnessed in recent weeks limits follow through from the hawkish comments, ~9bp of easing priced into BoE-dated OIS through year-end.
- SONIA futures flat to +3.0.
- UK yields 1.5-4.0bp lower on the day, at/just off session lows.
BOE: Bailey says that he voted for August cut due to slowing wage growth
Bailey says that he places more emphasis on wage growth: "So I agree with Megan and Clare that I think Alan said as well that we have got the risk on inflation has gone up. I think where I differ a bit is that I think I'm more concerned about the downside risk on the labour market. I think there is more evidence of some weakness in the labour market coming through the pay number. The pay number came in under where we thought it would be based on the May, the May forecast. So I put a bit more emphasis on that downside risk."
BOE: Taylor in the "four plus one camp" camp for cuts this year
- Taylor states that "the most risky channel for the transmission of inflation expectations back into inflation, actual inflation is through wage bargaining but I think given the softening in the labour market"
- He sees wage growth as slowing: "It's generally coming in in the low threes or thereabouts, and possibly lower, suggesting to me that we are completing that last mile of that trajectory."
- On disinflation is continuing but "It was a new set of shocks that we got in January, administered prices, taxes, a little bit of an energy shock, and now some food shocks. So I think I'm trying to see through that."
- He also notes that displaced goods that would have gone to the US are likely to weigh on UK / European inflation. "I think the tariff issue is a little bit undercooked in our in our baseline forecast. So there's a point of disagreement for me there."
- He also thinks that the neutral rate is lower: "I tend to think the neutral rate of interest is quite low, and so I feel we have further to go to reach neutral, which leads me to think therefore currently we're more restrictive, and that we're plenty restrictive enough to take the remaining underlying inflation out of the economy."
- "I'm more in the four plus one camp in terms of how many cuts per year, maybe four or five, rather than four minus four or three. And so I think that led me to my vote."
