USD/TRY: CBRT’s 100bps cut to be enough to keep lira alive – TDS

The CBRT reconvenes on Thursday, December 24. Economists at TD Securities forecast a 200bps hike of the repo rate, 50bps above consensus, but it may be enough for the CBRT to deliver 100bps at this meeting in order to keep the TRY momentum live. 

The USD/TRY pair is posting small losses as trades around 7.64 ahead of the meeting.

Key quotes

“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.”

“We still hold onto our view that the WACF will be lifted by a further 100bps to 18% in January. While this is where we set the terminal rate in our forecasts, the 18% mark is by no means a line in the sand. This is rather a level that can (and will) be subject to adjustments, possibly even sharp ones, depending on domestic and external factors. Amongst all, lira performance and inflation.”

“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. 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.”