The MPC Does the Expected, but Chooses Not to Tinker with F/X Ratios

TURKEY - In Brief 17 Sep 2013 by Murat Ucer

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As expected, the MPC kept all rates unchanged today, while its assessment of the economy (e.g., mild recovery in domestic demand, a contained CAD thanks to current policy framework) was also broadly unchanged.  The Bank chose not to alter the F/X ratios (that would help to transfer some of its gross reserves back to banks), probably because the lira has already strengthened a bit in recent days (thanks to external developments like L. Summers dropping out of the Fed race, Syria attack having been postponed) and the Bank wanted to keep that ammunition for later.  The Bank also said the headline inflation should continue to decline, but core should remain elevated because of recent lira volatility.  There was a new addition to the statement that said that the Bank intended to improve the visibility of its liquidity policy.Bottom Line: We have one of the most uneventful MPC statements in a long time.  In any event, the CBT actions in the past several months amid heightened global volatility showed that these statements have become much less useful and meaningful in terms of gauging the future course of monetary policy.  Hence, irrespective of what the Bank says about improving the visibility of its liquidity policy, in reality, we remain at the mercy of global winds and sentiment.