In a Bloomberg scoop, not yet discovered by Turkish media Central Bank of Turkey governor reportedly told his counterparts in a closed meeting that CBRT is not on a pre-set schedule to cut rates. CBRT’s first rate cut in December MPC meeting was considered too premature given very sticky inflation expectations and a pick-up in economic activity Q/Q in 4Q data. Many economists claimed CBRT was bowing to pressure from Erdogan and the business community pulling the trigger right before the announcement of new year’s wage hike and the pass-through to CPI.
Erdogan commenting in a speech that 2025 will witness lower rates, which would lead to lower inflation. This comment raised fears that Erdogan is once again taking the helm of monetary policy behind scenes, which cause periodic exchange rate shocks. Since then Erdogan didn’t repeat his perverted logic of the relationship between inflation and interest rates. Akcay’s comments might be leaked to the media to dispel the perception of Erdogan influence.
This is what Bloomberg reported in its website:
A top Turkish central bank official told bankers that the pace of interest-rate cuts will be based on the course of inflation, pushing back against market expectations for sizable, consecutive reductions, according to people familiar with the matter.
Central bank Deputy Governor Cevdet Akcay said earlier this week that the decisions would be taken meeting-by-meeting, people familiar with the discussions said, asking not to be named because the meetings were private. Some of the people said that he was cautioning against market pricing that implies a more aggressive cutting cycle.
The central bank declined to comment.
Markets and economists alike have been forecasting sizable interest-rate cuts in all of the eight policy meetings scheduled this year. The median forecast in a Bloomberg survey sees the year-end policy rate dropping to 30%, while markets price it at around 31.8%, compared with 47.5% now.
Barclays Plc and Turkiye Ekonomi Bankasi AS economists both said last month that they see 250 basis-point reductions in each of the meetings this year.
The yields on two- and five-year lira notes have declined by about 3 percentage points since mid-December as analysts adjusted their interest-rate forecasts downward and after better-than-expected inflation figures reported at year-end.
Akcay also said that growing foreign-currency loans were a cause of concern among officials and that played a factor in their decision to reduce monthly growth limits to 1% from 1.5% for corporates, according to the people.
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