No rate change today – Commerzbank

Turkey’s central bank (CBT) is scheduled to meet today for a rate decision: it is unanimously expected that the central bank will leave its key rate unchanged at 50%, Commerzbank’s FX analyst Tatha Ghose notes.

CBT rate decision will likely pass without event

“CBT’s language had to change decisively towards more hawkish after September and October inflation surprised by its stubbornness; inflation projections were revised up further in the latest Inflation Report. CBT’s commentary also confirms that the CB prefers to use liquidity sterilisation or other quantitative measures if necessary, but is unlikely to change the key rate – in either direction – within coming months.”

“President Tayyip Erdogan, however, has been making risky comments recently, which are unhelpful to the cause of inflation and could spook the FX market. Earlier this month, he re-stated his belief that interest rates and inflation could begin to decline together. On this occasion, he was probably not demanding that CBT cut rates to lower inflation. There will be no one to clarify finer points if and when the FX market or the media misinterpret Erdogan’s remarks – this is especially a risk because of the long history involved.”

“In a similar development yesterday, Erdogan stated that minimum wage hikes will outpace inflation during 2025. This was an unhelpful comment, which was repeated and debated by media outlets. Such messages are more capable than others of producing a self-defeating outcome if they were to trigger a lira rout. Today’s CBT rate decision will likely pass without event. But the same cannot be taken for granted, as far as the market’s perception of monetary policy over coming month is concerned.”