The Central Bank of the Republic of Turkey (CBRT) continued its policy interest rate reduction cycle, reducing the interest rate to 10.75 percent with a decrease of 1325 basis points in the last 6 meetings.
The Central Bank, which reduced the policy rate by a total of 1200 basis points in the Monetary Policy Committee (MPC) meetings in July, September, October and December last year, continued to reduce interest rates in the new year.
At the first meeting of the new year, the Central Bank took a measured step and cut 75 basis points. In its second meeting of the year, the bank reduced the policy rate by 50 basis points, which is the median average of economists in the AA Finance Expectation Survey. Thus, the Central Bank reduced the policy rate by 1325 basis points from 24 percent to 10.75 percent in the last 6 meetings.
“The doors are not closed to interest rate cuts”
AA Finance Analyst and economist Haluk Bürümcekçi said in his assessment that the CBRT made the interest rate cut close to the upper limit of market expectations, while the swap money market did not price this cut.
Stating that the CBRT made a “more measured” reduction based on the moderate course of core indicators, Bürümcekçi noted that he interpreted the bank’s repetition of the message sentence “At this point, it is considered that the current monetary policy stance remains compatible with the targeted disinflation path” as meaning that the door to additional interest rate reductions is not closed.
Bürümcekçi stated that the board, in its evaluations of the economy, emphasized that “the recovery in economic activity continues, but investments and employment remain weak, and there is a decrease in the factors that support the improvement in the inflation outlook.”
Bürümcekçi stated that with the reduction of the policy rate, the average funding cost will follow a similar trend with the weekly repo rate in the coming period and said:
“The overnight interest rate in the money and repo market will fluctuate in a narrow range depending on the liquidity situation of the banks, in the range of 9.25-10.50 percent, on average closer to the market maker rate. Turkey’s real interest rate, calculated according to the expected inflation, will be after this interest rate reduction.” It fell to 1.1 percent, below Mexico, Indonesia and Russia, and converged to the average of similar developing countries. In my opinion, a real interest rate below the average of developing countries is a real interest rate, considering Turkey’s credit risk, which remains high despite the recent decline. “It will not be appropriate. It is understood that interest rate cuts will continue with more measured steps, as inflation is in the 12-13 percent range at least during the first quarter of this year.”
“Our year-end policy rate forecast is 10 percent”
Deniz Yatirirm Strategist Orkun Gödek also stated that the main outlook of inflation and its course in expectations will be closely monitored in the near term, with 75 basis points left for the single-digit policy rate.
Stating that they have not made any revisions at the 10 percent level, which is the year-end policy rate forecast at this stage, Gödek said, “However, we find it appropriate to observe the possible interaction of the lira performance, which has been closely monitored in the recent period, with inflation expectations for a while. Although the decision taken is in line with the general market consensus, globally “Under the observed ‘strong US dollar’ theme, we can see continued pressure on lira crosses.” he said.
Gödek continued with the following evaluations:
“In an environment where uncertainties continue as to how long and to what extent the new type of coronavirus epidemic originating from China will affect global growth performance, especially in Asian economies, since mid-January, the theme of ‘strong American dollar’ is increasing its momentum in the eyes of developed and developing country assets. “On the other hand, the ‘low financial conditions’ environment in the monetary policies of developing countries is maintained. As a matter of fact, it is possible to evaluate the 50 basis point interest rate cut decision taken by the CBRT partly within this context and partly within the framework of the single-digit policy rate desire.”
GMC Investment Research Deputy Manager Kudret Ayyıldır stated that a 50 basis point reduction was made in line with expectations and said, “While the interest rate reduction supports the steady progress towards a single-digit policy rate, we also expect a measured interest rate reduction for the March meeting.” said.
Source: https://www.aa.com.tr/tr/ekonomi/merkez-bankasi-faiz-indirim-dongusune-devam-ediyor/1738618
