CBRT: door open for further easing? – Rabobank

Strategist at Rabobank Piotr Matys sees the possibility that the CBRT could loose further its monetary conditions in the medium term horizon.

Key Quotes

“We have been arguing for a while that the Central Bank of the Republic of Turkey (CBRT) may narrow its interest rate corridor by lowering the overnight lending rate instead of raising the overnight borrowing rate, which has been the predominant view in the market”.

“This symbolic rate cut not only marks yet another small step in simplifying the CBRT’s unorthodox monetary policy, but perhaps more importantly it indicates that the bias is gradually shifting toward policy easing over the mid-term horizon”.

“The key factor that allowed the CBRT to narrow its corridor is a far more stable lira. The currency and local assets are benefitting from an improvement in global demand for risk, driven by expectations that the Fed will not hike rates aggressively; China’s commitment to prevent significant CNY depreciation; and a comprehensive stimulus package revealed by the ECB in March”. 

“We maintain our view that USD/TRY should continue to trade well below the all-time high of 3.0752, which should give the CBRT more room to manoeuvre. EUR/TRY’s path of the least resistance should be down as TRY is a high yielder and EUR is one of the main funding currencies”.