Hawkish Till February 4th

TURKEY - In Brief 27 Jan 2015 by Murat Ucer

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Today Governor Basci presented the first Inflation Report of the year. This year's yearend inflation estimate was revised down by 0.6 pps on the back of lower oil prices, down to 5.5% (midpoint). The key highlight of the meeting however was what the Governor said during the Q&A session: if January inflation print comes in very favourable (release date: February 3), as the Bank clearly expects it to (based on its own private surveys/data collections), the MPC could meet as early as on February 4th (i.e before the official MOC meeting date of February 24th) to cut rates. Frankly speaking, this was one of the most awkward moments in our history of CBRT/Inflation Report watching -- it simply shows in our view, the kind of pressures the Bank must be under to ease and give a boost to growth. Otherwise, why the rush? Doesn't this hugely contradict another thing Basci has said and has been saying for some time, that "we shall be cautious till inflation outlook really improves"? And most importantly, can the lira handle this rush? As we discussed briefly in our recent Quarterly released yesterday, there are the rates that the Bank sets (weekly repo, O/N corridor), and there is the rate that the lira or "the reality on the ground" sets (which is the money market rate). So since the lira is not CHF or a reserve currency, isn't the CBRT worried about reversals, despite the ECB-QE and all that? Isn't the Bank worried at all -- after such a lousy track record of missed inflation targets and confusing monetary policy experimentations -- that the pricing behaviour might have actually worsened and that despite all the favourable base effects, we could see inflation creep up more than t...