MNI CBRT WATCH: Turkey Central Bank To Deliver 100-150Bps Cut

The Central Bank of the Republic of Turkey is expected to cut rates by up to 150 basis points on Thursday after inflation held steady at 33% in September, but also to reinforce hawkish language as it seeks to underline its commitment to containing the rate of price increases.

With September’s 33.3% inflation print coming on the heels of 33.0% in August, analysts expect the CBRT to slow the pace of easing from last month’s 250bps cut. (See MNI EM CBRT WATCH: Turkey Cuts 250BP, Removes Lira Reference)

That would still leave the 1W Repo rate, currently at 40.5%, in restrictive territory, and Governor Fatih Karahan is likely to link last month’s stronger-than-expected headline reading in part to seasonal effects. 

With inflation now seen coming in slightly above top end of the CBRT’s 25-29% target range this year, policymakers will be aware that anything greater than a 150bp reduction would raise questions over the Bank’s credibility. (See MNI EM INTERVIEW: CBRT To Cut 100Bps With Credibility In Focus)

A cut of 100 basis points would fit with the CBRT’s commitment to a data-dependent approach to loosening monetary policy. according to which “the step size will be reviewed prudently on a meeting-by-meeting basis with a focus on the inflation outlook,” economist M Coskun Cangoz told MNI this week. (See MNI INTERVIEW: Flat CPI Puts CBRT Nearer Hike Trigger Point)

Communications will follow the established pattern, with Karhan once again stating that the monetary policy stance “will be tightened in case of a significant deviation in inflation outlook from the interim targets.”

While the trigger point for a rate hike is getting closer, it is highly unlikely to be on agenda just yet. Instead, CBRT watchers will be attentive to any hint of a pause in the cycle, with an Inflation Report due in November. Equally, the timing of the next decision meeting, in early December, offers some breathing space.