​CBRT rate decision: First impressions

TURKEY - In Brief 21 Oct 2021 by Atilla Yesilada

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CBRT MPC just announced a 200 basis point rate cut, lowering the main policy rate to 16%. Depending on the survey, consensus was 50 basis points, though several participants didn’t exclude100 basis point rate cut. These are views of the Politics Author, and his alter ego Cosmic Strategist regarding the rate cut. They are not the “house views”. Cosmic Strategist and the Politics Author believe that monetary policy decisions are made in the Presidential Palace, with CBRT being forced to find somewhat reasonable grounds for them. Thus, the MPC statement is devoid of any meaning. In a nutshell, CBRT pointed to reserve money Central Banks which still pursue lax monetary policy, a slowing economy and commercial loans being impaired by the previously “tight” monetary policy as an excuse. The statement also contained the vague hawkish sentence of “little room left for further rate cuts until the end of the year.” This statement is neither here nor there.It is added as an insurance policy, in case President Erdogan gets frightened of the currency instability to reverse course, as he had done numerous times in the past. We believe that CBRT can’t read Erdogan’s mind, who may wish to instruct further rate cuts, coupled with immoral suasion on banks not to bid up FX, or BRSA to cut off swap lines once again. The current shake-down in the currency market is probably temporary, but there is no light at the end of the tunnel.According Financial times, FATF will announce its decision to put Turkey on its grey list tonight, while Erdogan’s flirtations with Putin are likely to earn Turkey even harsher CAATSA sanctions. At the end, with dozens of central banks, large and small, “tapering...