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20 May 2015
CBRT could hike after the June 7 elections – TDS
FXStreet (Edinburgh) - Paul Fage, Strategist at TD Securities, sees the likelihood of the Turkish central bank to hike rates following the upcoming elections.
Key Quotes
“The general election on 7 June is the next major event in Turkey. As we have discussed previously, the outcome is far from certain and could result in a coalition for the first time in many years”.
“From the CBRT’s point of view what is of concern in the immediate aftermath of the election is what the impact the result will have on TRY. Arguably, the CBRT will have a freer hand post the election to conduct policy exactly as it sees fit. This could mean that a TRY sell-off will be met with rate hikes”.
“On the other hand, a significant rally in TRY could in principle result in cuts”.
“However, we do not think that this scenario is very likely. First, we do not see that any particular outcome of the election would justify a major TRY rally”.
“Secondly we think that the first step that the CBRT would take would be to ease liquidity and bring domestic interbank overnight rates down from the ceiling of the rate corridor, rather than to cut the Repo Rate”.
“And finally we do not think that, save for a major TRY rally and/or a renewed fall in energy prices, the inflationary outlook is likely to improve sufficiently to justify cuts”.
“Therefore we think the next move in Turkish rates is likely to be up, possibly immediately following the election or later in the year in the wake of the Fed hiking”.
Key Quotes
“The general election on 7 June is the next major event in Turkey. As we have discussed previously, the outcome is far from certain and could result in a coalition for the first time in many years”.
“From the CBRT’s point of view what is of concern in the immediate aftermath of the election is what the impact the result will have on TRY. Arguably, the CBRT will have a freer hand post the election to conduct policy exactly as it sees fit. This could mean that a TRY sell-off will be met with rate hikes”.
“On the other hand, a significant rally in TRY could in principle result in cuts”.
“However, we do not think that this scenario is very likely. First, we do not see that any particular outcome of the election would justify a major TRY rally”.
“Secondly we think that the first step that the CBRT would take would be to ease liquidity and bring domestic interbank overnight rates down from the ceiling of the rate corridor, rather than to cut the Repo Rate”.
“And finally we do not think that, save for a major TRY rally and/or a renewed fall in energy prices, the inflationary outlook is likely to improve sufficiently to justify cuts”.
“Therefore we think the next move in Turkish rates is likely to be up, possibly immediately following the election or later in the year in the wake of the Fed hiking”.