The CBRT shocked the market by leaving the repo rate unchanged at 10.25%. Expectations were clustered between +150bps and +200bps. This immediately knocked the TRY off its pedestal, reversing 5 days of positive performance in a blink of an eye, leaving USD/TRY trading near to the 8.00 handle. TD Securities’ overall assessment is negative.
Key quotes
“The CBRT has shocked the market by leaving the repo rate unchanged at 10.25% today, against our call for a 150bps hike and the consensus’ more aggressive 175bps expectation.”
“The lira plunged to a new historical low vs USD of 7.9797, and is now targeting an 8 handle as the next big milestone. Rates also moved in sympathy with USD/TRY, ignoring the fact that repo was kept on hold.”
“Our overall assessment is negative for two reasons. First of all, it denies the need for tighter rates and a transparent and predictable monetary policy. Secondly, USD/TRY is likely to continue trending higher and likely break above 8 soon, inducing inflation to accelerate further. In this respect, the US elections represent a major exogenous risk for the lira.”
“Should Biden win, the risk of sanctions on Turkey would become more concrete and, with that the extension of an upside move in USD/TRY. If this scenario materializes, the CBRT may be forced to deliver significantly more tightening than is currently the case. We estimate that about 350bps of WACF tightening from current levels (12.52% as of 21 Oct) will be required between now and the end of November.”
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