Turkish central bank rate cuts send pound to new record low

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A logo of the Central Bank of Turkey (TCMB) is pictured at the entrance to the bank’s headquarters in Ankara, Turkey on April 19, 2015. REUTERS / Umit Bektas // File Photo

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LONDON, Dec. 16 (Reuters) – Turkey’s central bank cut its key rate again as planned by 100 basis points to 14% on Thursday despite inflation exceeding 21%, sending the lira to a new all-time low. Read more

Below is analysts’ reaction to the latest decision:

JAKOB CHRISTENSEN, DANSKE BANK

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“We expect that even if they remain on hold, the fact that inflation continues to peak and the US central bank is in tightening mode, there will be a bias in favor of a weaker pound. “

“I am concerned about the outlook for inflation over the next two to three months, as the pound weakens sharply (…) inflation is sure to exceed 30%.”

HALUK BURUMCEKCI, BURUMCEKCI COUNCIL

“(The central bank) at least giving the signal that it will not cut interest rates until March is a limited positive development for the Turkish lira … The central bank will most likely try to navigate this period using tools. macroprudential, mainly reserve requirements, and sometimes resorting to direct sales of currencies on the market. In other words, without raising interest rates. “

“Considering that inflation in Turkey will reach 35% and above by the middle of next year due to the recent outlook for the pound, the possible hike in the minimum wage, the significant deterioration in inflation expectations and the environment inflation, we believe these measures will not be enough and the bank will have to raise the key rate in the not-so-distant future. “

JOHN HARDY, SAXO BANK

“Turkey slashes 100 basis points to 14.0% as expected, but still unbelievable”

DENNIS SHEN, SCOPE ASSESSMENT

“The central bank’s tolerance for the pound’s pain certainly looks much higher with (President Tayyip) Erdogan now more or less fully in charge of rate policy.”

“The only thing is that while the destabilizing devaluation of the pound is somehow fully justified as being good for correcting the current account and increasing exports, now that the pound crisis is starting to have an effect on growth conditions, whether it is an economic weakening could growth force Erdogan to change course before the elections by 2023?

“If this is the case, any ‘change of course’, however, may not mean a rate hike immediately, even if the central bank suspends rate cuts at least for the foreseeable future, which potentially means checks and balances. capital, more currency trading with domestic banks and friendly allies, and the use of reserves to support the pound if pressure to sell the pound continues. “

JASON TUVEY, CAPITAL ECONOMY

“Today’s decision provides further evidence, if needed, that macroeconomic developments play little role in shaping CBRT policy.”

“The accompanying statement suggests that the easing cycle will be on hold early next year but, even so, the lire will remain under pressure and capital controls are likely.”

IPEK OZKARDESKAYA, SWISSQUOTE BANK

“Turkey’s central bank made the decision to cut rates by 100 basis points despite strong market objection. It is a bold move that will certainly cost Turkey a lot of money, and some headaches. massive sale of the pound. I expect the USD-TRY to end the year in the 17-19 range. “

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Reporting by Ece Toksabay, Marc Jones, Karin Strohecker, Susan Mathew, Nevzat Devranoglu and Ambar Warrick

Our Standards: Thomson Reuters Trust Principles.

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