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Turkey: Central bank cuts rate, now time for fine tuning – BBVA

Today, the Central Bank of Turkey (CBRT) cut the policy interest rate by 325 bps from 19.75% to 16.50%. Analysts at BBVA Research point out the move was higher than expected but the reaction of financial markets was positive as the central bank justified the movement with a faster than expected disinflation in the statement.  

Key Quotes:  

“We assume that after the second bold decision (750 bps in two meetings) the CBRT will move to fine tuning and will continue to decide according to inflation projections and realizations.”

“Given global uncertainties, the CBRT should enhance prudence from now onwards and signal to the market that they will be ready to go in any direction if needed.”

“The CBRT delivered the second bold movement and justified this with the faster than expected disinflation path. This is partly the result of better than expected data in August (15%), the inflation falling below two digits in temporarily September and October and last, but not least, a likely revision in the expected inflation in the short & medium term in the Central Bank Projection models.”

“Once they catch up with the disinflation path, the CBRT should return to maintain the fine tuning and monitoring closely the inflation data & financial stability. At the same time, the Central Bank should be prepared for changes in any direction if needed. We expect rates to close this year in the 15%-16% area.”


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