MPC does the expected, very likely not done yet

TURKEY - In Brief 16 Jan 2020 by Murat Ucer

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Broadly in line with our expectations, the Monetary Policy Committee reduced the policy rate (weekly repo) once again today and kept the reduction relatively measured, at a 75 bps clip. The policy rate is now down to 11.25% (simple), which brings the cumulative drop since last July to 1275 bps (see chart). This means that the real policy rate is now negative on actual inflation (which is around 12%) and barely positive on expected inflation (around 10%), which, typically, is not a good omen for the shape of things to come. The Bank keeps playing up the benign inflation dynamics as a justification for the move, even though underlying inflation dynamics reveal considerable degree of stickiness and the outlook itself is full of risks, as we’ve been pointing out for some time. In any event, we do not think that the Bank is done yet, currency permitting, and the single digit policy rate, in line with President Erdogan’s “theories” and “guidance”, remains the Bank’s key goal. That Mr. President is running the show here was once again attested to, by his remarks right before the MPC announcement was made.As far as the content of the statement goes, there were no material differences between the two statements in our view, except two modifications regarding the stance and direction of policy. First, the sentence, “[a]t this point, the current monetary policy stance is considered to be consistent with the projected disinflation path” of the previous statement has been changed to “[a]t this point, the current monetary policy stance remains consistent with the projected disinflation path,” in the current statement (emphasis is ours).Second, in the penultimate sentence of the last...