Governor Basci as dovish as ever...

TURKEY - In Brief 24 Jul 2014 by Murat Ucer
Governor Basci presented the third Inflation Report of the year today in Ankara. The yearend inflation estimate (midpoint of a 70% band) was kept at 7.6%, as we expected, while the Bank – as it always does but never gets it right – see inflation decelerating to 5% by the end of 2015. A most notable feature of the presentation was Basci’s very dovish inflation narrative to an extent that it made us think his main task on stage today was to convince the audience that all is well on the inflation front and hence to clear the way for further easing. The Bank’s game plan now, which is not new, may be summed up as follows: keep the O/N lending rate (12%) about where it is as a first line of defense against F/X market volatility, but ease the key reference rate (weekly repo) further. Our reading of the intention on the latter is probably another 100 bps at least – as long as the markets continue to accommodate. We shall write a somewhat more detailed note later today...

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