CBRT bafflingly softens language

TURKEY - In Brief 25 Apr 2019 by Murat Ucer

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In line with expectations, the Monetary Policy Committee (MPC) kept the policy rate (one-week repo rate) at 24% (simple) today (see chart). In the statement, the Bank’s assessment on the economic outlook was almost unchanged compared to the previous one, but the MPC unexpectedly eased its language regarding monetary policy stance with the removal of the expression “if needed, further monetary tightening will be delivered”, which was replaced by a visibly less hawkish or more neutral, “monetary stance will be determined to keep inflation in line with the targeted path." Initial market reaction to the statement was considerably negative with USD/TL jumping from 5.89 to around 5.95. In fact —and perhaps needless to say, we consider this change of wording as a “policy mistake”. At a time the lira remains vulnerable and market expectations have been shifting toward tightening, from significant easing we saw earlier in the year (which were a bit too optimistic and unrealistic in the first place), the CBRT has softened the wording prematurely today for reasons that are hard to fathom. Incidentally, policy mistakes have been piling up lately, arguably bringing us closer to the proverbial fork in the road. Aside from the very big blunder that has been going around CBRT’s reserve position, on which the Bank is expected to issue a statement next Tuesday during the Inflation Report presentation (which of course begets the question of why wait this long in the first place), Ankara has turned visibly “pro-growth” again recently, with state bank lending surging and the fiscal stance loosening markedly, the latter most clearly illustrated by an IMF-defined primary deficit running arou...