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Turkey: Central bank widely expected to cut its policy rate – Rabobank

Piotr Matys, emerging markets FX strategist at Rabobank, suggests that before the ECB announces its decision at 12:45bst on Thursday, Turkey’s central bank is widely expected to cut its policy rate on the same day.

Key Quotes

“We forecast a 300bps move to 16.75% which is slightly above the consensus expectation for a 275bps cut. The risk is firmly skewed in favour of a much bigger cut after the influential Turkish President Erdogan said over the weekend that the policy rate will be lowered to single digits “in the shortest period.” While the massive 425bps cut in July was absorb by the market, on this occasion a move that significantly exceeds expectations may be far less tolerated amid growing concerns that the Erdogan administration intends to rely on significantly lower interest rates to spur credit growth.”

“A very ambitious target of 5% for 2020 GDP growth set by President Erdogan implies that he envisages a V-shape recovery generated by a strong credit impulse rather than comprehensive economic reforms that would also address Turkey’s structural issues. These include C/A deficit and strong inflationary pressure when consumer spending is stimulated.”

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