Turkey: New outlook requires a more cautious CBRT – BBVA

The Central Bank of the Republic of Turkey kept the key interest rate unchanged at 19%, as expected on Thursday. According to the Research Department at BBVA, the worsening inflation outlook and potentially increasing global yields after Wednesday’s FOMC meeting will require the Turkey central bank to be more cautious.

Key Quotes: 

“The Central Bank of Turkey kept the policy rate at 19% in line with the expectations.”

“Given the worsened inflation expectations, the CBRT repeated the need to decisively keep the current “tight” monetary policy stance. Thus we expect an easing cycle only very gradually in late 3Q and end the year with 16% policy rate.”

“All in all, if the potential impact of the reopening in the economy is considered as we confirm with our Big Data demand indicators, the uncertainty increased further on inflation, given the delayed demand and supply - side factors. Therefore, worsening inflation outlook and potentially increasing global yields following the hawkish messages of the FED will require the CBRT to be more cautious, which the CBRT tries to manage right now by trying to eliminate any early rate cut expectations.”