Weekly Tracker: December 6-12
The crisis between Turkey and Russia is climbing by the day in words as well as in deeds. On the domestic side, President Erdogan wants constitutional change at once, while PM Davutoglu prefers to wait for two years. The two leaders could soon clash in other policy areas as well. In Cyprus, all visiting leaders assure us that the peace talks are going well, but we have little information on the details.Progress in accession hinges on a peace deal.
There are a number of important data releases this week. We estimate Q3 GDP growth to come in at 2.5%-3%, y/y, and the current account to yield a small deficit in October, on the order of $0.2 billion.If correct, the latter would take the 12-month rolling deficit to $38.5 billion from $40.6 billion in September. Notably, preliminary November data points to another sharp shrinkage in the trade deficit, led by a decline in both energy and non-energy imports.
On Wednesday, the CBRT is expected to release its regular yearend Monetary and Exchange Rate Policy document for 2016, which should tell us a bit more about how the Bank plans to proceed in the face of the upcoming Fed normalization. We do not expect bold action from the CBRT, which we define as a narrowing of the O/N corridor accompanied by a hike of the O/N lending rate; and providing all funding needs at the weekly repo rate, and hence, the policy rate.
As expected, Moody’s left the rating and the outlook on Turkey’s sovereign credit intact, at investment grade and negative, respectively, with basically fiscal metrics saving the day, as in the case of other agencies.
Cosmo questions why the lira retained its strength, relatively speaking, while other Turkish assets went south during the week, and concludes that trust in CBRT’s promises to tighten is the key. But, will the Bank keep its promise?
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