Turkey: Lot of uncertainty about CBRT rate decision - TDS

According to analysts at TD Securities, there is a lot of uncertainty about today's CBRT rate decision as the Bloomberg consensus is looking for the benchmark one-week repo rate to be hiked from the current 17.75% to 21%, with individual forecasts ranging from 17.75% to 25.0%.

Key Quotes

“We think the CBRT will want to do more than the consensus, and will hike the one-week repo rate to 22.0%. On the face of it this would be a 425bps hike. However, the Weighted Average Cost of Funding (WACF), which better expresses the overall stance of monetary policy, would be lifted to 22% from 19.25% now, making a less aggressive increase of 275bps.”

“Will this be enough to placate the market for now? Possibly, but long-term stability is another matter entirely. As the pass-through of weak lira into CPI advances, inflation will reach (and very likely breach) the 20% mark and we continue to forecast the WACF at around 30% before year-end.”