Heading into today’s Turkish central bank decision, there was much speculation if the CBRT would become the latest bank to jump onboard the global easing train, ignoring Turkey’s runaway inflation and cutting rates – despite a consensus call for an unchanged print – to stimulate the contracting economy.
Moments ago the answer was unveiled, and for now, Ankara has decided to wait, even though Erdogan has made his displeasure with high rates very clear in recent months.
Specifically, the central bank’s Monetary Policy Committee kept benchmark 1-week repo rate unchanged at 24%, as expected if above whisper numbers. It also kept all three other major rates unchanged, including the Overnight Lending rate (25.50%), Overnight Borrowing rate (22.50%), and the Late Liquidity Window Rate at 27.00%.
Some highlights from the statement:
- “Recently released data show that rebalancing trend in the economy has continued.”
- “External demand maintains its relative strength while economic activity displays a slow pace, partly due to tight financial conditions.”
- “Current account balance is expected to maintain its improving trend.
- “Developments in domestic demand conditions and the tight monetary policy support disinflation.”
- “In order to contain the risks to the pricing behavior and to reinforce the disinflation process, the Committee has decided to maintain the tight monetary policy stance.”
- “Monetary stance will be determined to keep inflation in line with the targeted path.”
As Bloomberg notes, the central bank changed some of the key wording, now saying that monetary policy was kept tight “in order to contain the risks to the pricing behavior and to reinforce the disinflation process,” departing from previous language on future policy path, and dropping the following sentence that appeared in its April 25 decision: “Accordingly, the Committee has decided to maintain the tight monetary policy stance until inflation outlook displays a significant improvement.”
And while the broader Turkish population, as well as Erdogan, may be displeased with the announcement, Lira long were happy, as USDTRY tumbled from 5.815 to 5.785 in moments after the announcement, as the market had braced for a surprise dovish move, especially with “official inflation” recently reported to be coming in below expectations.
Of course, the trade off to no rate hikes is further economic slowness, something Turkey hardly needs especially as the diplomatic feud over Ankara’s decision to purchase a Russian missile system, risking Washington’s ire and sanctions, still looms.
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Author: Tyler Durden