Turkey: CBRT delivers above-consensus cut – Standard Chartered

Carla Slim, economist at Standard Chartered, points out that in line with their expectations, the Central Bank of the Republic of Turkey (CBRT) cut its policy rate, the weekly repo rate by 200bps at its final meeting for the year and was above consensus expectations of 150bps.

Key Quotes

“This takes the weekly repo rate to 12.0% and puts cumulative easing at 12ppt since July 2019, which means the CBRT has halved nominal interest rates in H2-2019.”

“Why? We had called for a final above-consensus rate cut in 2019, owing to our year-end inflation estimate of 11.5%, which is slightly below the CBRT’s 12% forecast. Indeed, the post-meeting statement notes that inflation is likely to materialise close to the lower bound of the October inflation report projections for end-2019 (i.e., 11.2%). The CBRT has consistently delivered above-consensus cuts since the start of its easing cycle on 25 July 2019. We believed this would apply to the final meeting of the year, despite the risk of US sanctions.”

“What lies ahead? We flag that the CBRT may face a delicate balancing act in 2020: as the current account turns into a deficit and domestic demand recovers, potential external shocks are likely to have a more material impact than in 2019. We maintain our end-2020 policy rate forecast at 11.0% as we believe we are nearing the end of the easing cycle and interest rate cuts in 2020 are likely to be shallow.”