23 Dec 2014
Adverse market conditions to keep CBRT cautious until next year – TDS
FXStreet (Barcelona) - Analysts at TD Securities expect the CBRT to keep all key rates unchanged, further adding that CPI expected to improve in the coming months and may remain above the 5% target both in 2015 and 2015.
Key Quotes
“The CBRT’s MPC will reconvene for the last rate announcement of 2014 on December 24th. In line with the unanimous consensus, we expect all key rates, as well as the main macroprudential tools such as the RRRs or ROMs, to remain unchanged.”
“This means the CBRT should hold the benchmark 1-week repo rate at 8.25%, the overnight lending rate at 11.25%, and the O/N borrowing rate at 7.50%.”
“We think the decision is consistent with the inflation outlook, as CPI is expected to improve in the coming months but will remain above the target at 5% both in 2014 and 2015. Negative real rates throughout most of 2014 provide indirect evidence that the current stance of monetary policy is not tight enough. With the November CPI standing at 9.2% Y/Y, 1yr real rates are currently around -0.8%; while longer maturities have only marginally higher albeit still negative rates as the Turkish curve remains flat.”
“On the other hand, market conditions have recently soured. USDTRY hit an all-time high at 2.4146 on December 16. This was higher than and the move nearly as brisk as the spike recorded in January, when the CBRT had to hike rates in a dramatic emergency meeting to avoid a currency crisis after the lira plunged at the then weakest level to the dollar at 2.39. After recovering for the following five months, the lira has been on a weakening trend since end-July.”
“The most recent price action is likely to reflect a combination of local and external factors, among which spillover effects from the Russian crisis, and expectations on Fed’s policy.”
Key Quotes
“The CBRT’s MPC will reconvene for the last rate announcement of 2014 on December 24th. In line with the unanimous consensus, we expect all key rates, as well as the main macroprudential tools such as the RRRs or ROMs, to remain unchanged.”
“This means the CBRT should hold the benchmark 1-week repo rate at 8.25%, the overnight lending rate at 11.25%, and the O/N borrowing rate at 7.50%.”
“We think the decision is consistent with the inflation outlook, as CPI is expected to improve in the coming months but will remain above the target at 5% both in 2014 and 2015. Negative real rates throughout most of 2014 provide indirect evidence that the current stance of monetary policy is not tight enough. With the November CPI standing at 9.2% Y/Y, 1yr real rates are currently around -0.8%; while longer maturities have only marginally higher albeit still negative rates as the Turkish curve remains flat.”
“On the other hand, market conditions have recently soured. USDTRY hit an all-time high at 2.4146 on December 16. This was higher than and the move nearly as brisk as the spike recorded in January, when the CBRT had to hike rates in a dramatic emergency meeting to avoid a currency crisis after the lira plunged at the then weakest level to the dollar at 2.39. After recovering for the following five months, the lira has been on a weakening trend since end-July.”
“The most recent price action is likely to reflect a combination of local and external factors, among which spillover effects from the Russian crisis, and expectations on Fed’s policy.”