WOOD Flash – Turkey macro: MPC signals that it has had enough!
The Monetary Policy Council at the CBT has surprised us and the market with its decision to raise the key policy rate (1W repo rate) by 200bps to 10.25% at its meeting yesterday (24 September), delivering more than the 75bps we expected to see by early next year. In our view, this decision signals that the MPC wants to cool the economy enough to bring inflation closer back to single digits, after the recent inflation readings showed no sustainable progress on the disinflation front. The ongoing global COVID-19 crisis complicates the balance of payment position, which should see modest relief from recovering exports. We expect to see a further 175bps of monetary tightening in the main policy rate in the near term, and the impact of this on our TRY model projection is minor, but favourable. Overall, we believe that this latest move reduces the risk of severe runaway depreciation and, on the margin, makes it more likely that the currency will stabilise next year at 8.3/USD.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
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