Try: CBT could adjust some policy tools – Commerzbank

It is unlikely that the Turkish Central Bank (CBT) will reduce its main repo rate at today’s meeting, as soon as it had to harden emergency rates between meetings after the explosion of the market when the mayor of Istanbul, Ekrem, was arrested. However, some adjustments in secondary policy tools are possible: for example, the CBT could normalize its effective interest rate towards the level of 42.50% reopening the ease of weekly repo, while perhaps it still limits the volume offered through this ease, says the CommerzBank’s currency analyst, Tatha Ghose.

There is no reason to restart feat cuts

From a fundamental point of view, there are no arguments to restart feat cuts. An examination of recent developments, particularly the increase in inflation expectations and persistent exchange pressures (despite the interventions in the current currency market), means that the highest effective interest rate of 46% (based on the Overnight loan rate) should be maintained for now.

“In addition, despite the aggressive interventions to defend the 38.0 threshold of the USD/Try, the volatility has persisted. The USD/Try has exceeded that 38.0 barrier and is now quoted at 38.10 (which will become the new defense line). According to local media reports, foreign media reserves fell in approximately 40,000 million dollars after the arrest of İmamoğlu, and net reserves excluding Swaps fell to only 19.3 billion dollars compared to a March peak of 59.5 billion dollars.

“In any case, the use of the infamous rational corridor, once again, is an absolute disaster for the credibility of the CBT. It will be interesting to observe if the CBT address expresses the appropriate caution in its writing today, or sounds complicating when thinking that the situation is already well controlled. Any complacency will open the change type to more clashes.