Turkey: Limited room for further CBRT easing – Standard Chartered

Carla Slim, economist at Standard Chartered, expects the Central Bank of the Republic of Turkey (CBRT) to cut the repo rate by 100bps on 24 October, following cumulative easing of 750bps at its last two Monetary Policy Committee (MPC) meetings.

Key Quotes

“We do not rule out a deeper cut of up to 200bps, in which case the MPC would emphasise downside risks to year-end inflation. The October CBRT expectations survey shows year-end inflation expectations fell to 12.7% from 14% a month earlier. Having fallen to single digits (9.3% y/y) in September, we think inflation will likely drop further in October before rising to double digits again in November. We see year-end inflation at c.13% and real interest rates at 2.5%.”

“Given conducive domestic conditions, as well as another expected Fed cut in 2019, we think the CBRT will likely see through the resurgence of the political risk premium related to Turkey’s military incursion in Syria.”

“The sanctions imposed on Turkey by the US recently should not lead to another FX crisis, in our view, barring additional escalation and measures by the US. This time is different – external vulnerabilities are much less significant. However, given the cyclical nature of Turkey’s stabilisation post-FX crisis, the improvement on the external front could prove temporary. As domestic demand recovers, import growth will likely return, tipping the current account back into a deficit.”