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On Thursday, the Central Bank of the Republic of Turkey (CBRT) will have its monetary policy meeting. Analysts at TD Securities forecast a 200bps hike of the repo rate, 50bps above consensus. They also see the CBRT rising another 100bps in January to 18%. 

Key Quotes: 

“The CBRT will reconvene tomorrow, Thursday 24 December. As widely anticipated, we forecast a 200bps hike of the repo rate to 17.00%, 50bps above the consensus. Given the equivalence between repo rate and WACF, we expect them to move in tandem, though the WACF always takes a few days to converge to the repo target rate.”

“The CBRT should tighten rates and keep them tight for long. This is needed to both fight inflation and ensure TRY receives enough support against the risks mentioned earlier. Credit growth, wide current account deficits, direction and magnitude of capital flows and, eventually, FX reserves would all benefit from a properly tight interest rate environment.”

“The 24 December decision will likely be in this direction, hence supporting the view that the CBRT is still tightening rates. It may be enough to deliver 100bps at this meeting and keep the TRY momentum on. But any sign that the CBRT is backpedalling on its commitment to fight inflation and restore orthodox policy may be destabilising and erase hard-earned market trust.”