Turkey: CBRT to stay the course at the July MPC – Standard Chartered

Carla Slim, Economist at Standard Chartered, suggests that they see three reasons for the Central Bank of the Republic of Turkey (CBRT) to hike the key policy rate – the repo rate – again at the 24 July Monetary Policy Committee (MPC) meeting.

Key Quotes

“This would follow a 500bps total increase since the start of the year. We raise our 2018 year-end policy forecast to 19.75% (from 18.25%) to factor in a tighter CBRT stance.”

“Inflation: The June CPI print highlighted most of Turkey’s traditional inflationary drivers, which pushed inflation higher to 15.4% y/y: food inflation rose to 19% from 11% in May and higher global oil prices pushed utility and transport prices higher to 12% and 24%, respectively.”

“External sector: Turkey still faces external vulnerability pressures. The May current-account deficit rose to USD 5.9bn (up 9% y/y) and was financed largely by a reserve drawdown and by unidentified inflows (net errors and omission). Net inflows through the financial account were close to zero. The last credit rating downgrade by Fitch, with a negative outlook, will likely weigh further on investor sentiment.”

“Investor concerns: While we think comments by Treasury and Finance Minister Berat Albayrak are encouraging, they will likely need to be complemented by CBRT actions to stem concerns relating to central bank independence.”