Turkey Takes Another Step to Rate Cuts by Tossing Hawkish Pledge



Cagan Koc | Bloomberg

Turkey held interest rates for the ninth month as the central bank moves closer to resuming cuts with a slowdown in prices.

Having already laid the groundwork for a less hawkish attitude in April, Governor Murat Cetinkaya took another step on Wednesday by dropping a pledge to “maintain the tight monetary stance until the inflation outlook displays a significant improvement.” The central bank replaced it with an explanation that policy was kept tight “to contain the risks to the pricing behavior and to reinforce the disinflation process.”

The Monetary Policy Committee also kept its benchmark at 24% on Wednesday, in line with the forecasts of most economists surveyed by Bloomberg.

“These changes are paving the way for easing,” said Inan Demir, an economist at Nomura International Plc in London. “However, ultimately, domestic and international political risks will determine whether the central bank will find the opportunity to ease.”

The central bank may not yet be in the clear because a controversial rerun of Istanbul elections looms in less than two weeks, compounded by tensions with the U.S. that could plunge Turkey into renewed turmoil. But gains in the lira may eventually be enough to prompt policy makers to cut rates in the coming months, especially now that a slowdown in inflation is becoming entrenched. Adjusted for prices, rates in Turkey are about double the level among peers such as Russia and South Africa.

The lira traded stronger against the dollar after the rate decision, extending the best performance in emerging markets over the past month. It was trading 0.1% higher against the dollar at 5.7937 as of 2:32 p.m. local time. Investors anticipate the Turkish currency will remain among the world’s most unstable, with its three-month implied volatility the highest globally.


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