The CBRT follows orders, as expected

TURKEY - In Brief 21 Oct 2021 by Murat Ucer

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Writing belatedly here because of a prior commitment. There is really not much to add to what my colleague Atilla already said, but here are a few thoughts for the record. The cut was more than what the consensus – around 50 bps -- expected, but after the final round of changes at the CBRT, that should perhaps not be too much of a surprise. At last Sunday’s Weekly, this author did not pronounce 200 bps specifically, but noted that, “[a]ter last week’s developments, we think the CBRT/MPC is almost certain to execute another 100 bps cut -- or more at this week’s meeting”.The economics of the statement is one of the worst on record and has at any rate no significance, so we will again avoid wasting your time on it. The sentence “till the end of the year, supply-side transitory factors leave limited room for the downward adjustment to the policy rate”, has caught some market/analyst attention, and is therefore worth a comment. This looks like an effort to contain the damage, but a futile and a fairly absurd one that should have the opposite effect, because it signals another 150-200 bps cut before the end of the year, cumulatively – aggressive enough to make locals even more nervous and boost dollarization.The key question, of course, is what happens now. Again, quoting from our Sunday Weekly, it is a lot about “how quickly and sharply” the lira would weaken, “and how the locals would respond to that” -- a situation Ankara will likely try to manage through moral suasion and F/X interventions first. And then, we'll see.