Could the Turkish central bank surprise markets again today?
Given its track record, few will dare to place firm bets on the outcome of today’s meeting but the general reckoning for now is that the bank will keep borrowing and lending rates steady and signal no immediate change to its weekly repo rate of 5.75 percent. With year-on-year inflation in the double digits, logic would dictate there is no scope for an easier monetary policy.
But there are reasons to believe the Turkish central bank, whose mindset is essentially dovish, is letting its thoughts stray towards rate cuts. Consider the following:
a) Governor Erdem Basci has already said he does not see the need for further policy tightening b)The lira has strengthened 9 percent this year against the dollar and is back at levels last seen in early September, thanks to almost one billion dollars in foreign flows to the Turkish stock market and well-subscribed bond issues. And crucially c) Global factors are supportive (developed central banks are continuing to pump liquidity and a bailout has finally been agreed for Greece) .
So some analysts are already weighing the likelihood of a pre-emptive rate cut in Turkey. ING analyst Sengul Dagdeviren writes:
Depending on the CBT’s view on capital inflows (ECB LTRO due soon, quantitative easing bias strengthening in G10, and Greece worries diminishing look supportive in that regard), the chance that it could surprise markets by lowering the upper band of the overnight interest rate corridor to 9 percent (down from 12.5 percent) remains.