In Turkey, we expect the CBRT to over-deliver with a policy rate cut of 257bp on Thursday. After the initial 425bp cut in July, inflation dynamics have improved while the currency relative stability and global low-interest rates have provided a backdrop for the CBRT to chop rates. It also does not hurt that President Erdogan has basically order the central banks to aggressively cut rates. With inflation stuck around 14% the size of cuts should taper off. Also, the resurgence of pressure on the lira could force policy markets to take a caution strategy. 2Q GDP data was encouraging indicating a faster than expected recovery in private consumption and in growth, which will likely embolden politicians. Cutting rates should support investment, which remains weak. And remains a negative signal for the long term outlook. Finally, we don’t expect significant changes in language around the interest rate announcement. We expect the MPC to highlight “monetary tightness will be determined by considering the indicators of the underlying inflation trend”. In the short run, any cut above 250 should cause short-term weakness in the lira.
By Peter Rosenstreich