In a hurry to please the boss

TURKEY - In Brief 20 Oct 2022 by Murat Ucer

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The CBRT/MPC cut the policy rate (one-week repo) by another 150 bps to 10.5% (simple) today, versus the consensus view of a 100 bps cut. That the cut is deeper should not be all that surprising, however. Since President Erdogan called for lower rates and indicated a single digit rate as the objective, we knew that the Bank would almost certainly head there. It looks like it is now aiming at a quicker delivery -- in two clips rather than three – as explicitly stated in the statement, that “[t]he Committee evaluated taking a similar step in the following meeting and ending the rate cut cycle”. Otherwise, there is almost nothing new in today’s statement, with the main motivation behind the cut again given as weakening economic activity, though, as we had pointed out in our MPC brief last month, it’s doubtful whether the move is even consistent with this stated objective, given the relatively tight credit conditions prevailing on the ground due to other measures and interventions. More importantly, notwithstanding the notable jump in CBRT gross reserves in July/August, whether this fragile dynamic can continue until the elections (likely to be held in May 2023) without another major market turmoil is the key macro question facing Turkey at the moment. We will revisit this and a few other questions in our forthcoming monthly report on Sunday.