No surprises from the MPC

TURKEY - In Brief 06 Mar 2019 by Murat Ucer

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As expected, the CBRT’s Monetary Policy Committee (MPC) kept the policy rate (one-week repo rate) at 24% (simple) today, which was the last meeting before local elections of March 31st. Recall also that this is the fourth consecutive meeting that the Bank left rates unchanged, since it had raised the policy rate by 625 bps on September 13th (see chart).Today’s statement has a few relatively minor changes from the previous one, with the sentence on economic activity having been revised to (emphases are ours): “External demand maintains its relative strength while economic activity displays a slow pace, partly due to tight financial conditions” from: “External demand maintains its strength while slowdown in economic activity continues, partly due to tight financial conditions”, previously.Unimpressive export growth (in low digits) combined with somewhat of a less dramatic contraction in imports (around 17% vs. 25%-30% of the previous few months) in the February preliminary data has probably prompted the Bank to add “relative” to the first part of the sentence, while the latter modification suggests that the Bank probably thinks economic activity is no longer contracting as sharply as in Q4, but that it nevertheless remains rather weak, which is broadly in line with our thinking. Meanwhile, the relatively hawkish reference to inflation has been maintained, with a rather minor (and in our view, immaterial) change in the structure of the sentence.As we’ve been pointing out, Ankara has been responding to weakness in economic activity largely through various heterodox means (including quasi-fiscal measures). But as this stance proves increasingly ineffective, it is likely to ...