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Piotr Matys, analyst at Rabobank, sees increased odds that the CBRT will slash rates at today’s meeting, now that the lira is recovering.

Key Quotes

“A 100bp cut would be in line with the consensus estimate, but, as always, expectations for Turkey’s rate decision vary quite substantially from unchanged to a 225bp cut.”

“Since being appointed, Governor Uysal has proved that President Erdogan gave him the mission of taking interest rates as low as possible in the shortest possible time. Mr Uysal is likely to continue with his mission until the market sends him a strong signal that he went too far. And it is perfectly possible that he will ignore such a signal anyway, which would constitute a policy mistake.”

“In Piotr’s view it would be prudent to consider a pause in the easing cycle until the dust over Syria fully settles. Over the past few months the CBRT slashed rates by a total of 750bp to 16.50%, easing the burden on the economy. Why take the risk of cutting rates further and making the lira less attractive for carry trade players? That said, it does not matter what would be a sensible decision in our view, but what is the most likely to happen. Piotr believes that CBRT is likely to cut rates by at least 100bp with the odds skewed in favour of a much bigger move.”