Following the dismissal of the Turkish Central Bank (CBRT) governor Murat Uysal on November 6, and the unexpected resignation of finance minister (and President Erdogan son-in-law) Berat Albayrak on Sunday November 8, the subsequent nomination of Lütfi Elvan and Naci Agbal as the new Finance Minister and CBRT governor respectively points towards a possible change in the Turkish economic policy path.
Perceived as good news for markets, with prospects of a return to a more conventional policy, the TRY strengthened by nearly 10% against the USD in the past week, down from its historical low of 8.52 to 7.7 as of today, while 5Y CDS eased to their lowest level in months from 523 to 405 as of today.
After having kept unchanged its one-week repo key rate at 10.25% in the last two MPCs, we expect the CBRT first MP committee under Agbal’s direction will agree on the rise its benchmark rate by a considerable 400-450bps to 14.75% tomorrow (November 19), to align it with its Late Liquidity Window lending rate. We believe there is space left to see further rate hikes in coming months.
Inflationary pressures remain well in place. Fed by the TRY depreciation pass-through effect, global CPI stood at 11.9% in October (vs. official objective of 5%).
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