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On Thursday, the Central Bank of the Republic of Turkey (CBRT) raised the monetary policy rate by 200bps to 17%. Analysts at BBVA Research, evaluate the decision as a front-loaded action to contain inflation expectations and restore the disinflation process in a decisive manner and forecast that the CBRT will follow a wait-and-see mode from now onwards until a permanent fall in inflation is achieved. 

Key Quotes: 

“Given the upside surprise in November inflation release, lagged effects of the exchange rate pass-thru, and increasing supply side factors, inflation will be increasing above 15% till May 2021 even under a stabilized currency.”

“The forward guidance in terms of taking into account the end-2021 forecast target (9.4%) and adopting a framework with a medium term perspective should also be welcomed in order to eliminate risks on the inflation outlook.”

“We evaluate today’s decision as a front-loaded action to contain still deteriorating inflation expectations and continuing dollarization tendency of the residents. We expect a comprehensive policy-mix targeting a rebalancing in the economy by eliminating disequilibria in a context that would be complementary to the already tightened monetary policy.”