Turkiye - an opportunity missed by the CBRT

The CBRT’s MPC surprised the market cutting policy rates by 300bps to 43%.

Disappointing move by the CBRT - in terms of the market expected the MPC to show its independence and boost its credibility by doing less than what was priced in. The market was pricing a 250bps cut, and they ended up doing more, not less.

The CBRT had a chance to get ahead of the curve in terms of anchoring inflation expectations lower, and it fluffed its lines.

I guess part of the problem here is that there has been a lot of communication with the market in recent weeks - the Governor and Hatice Karahan had met investors in London and Istanbul, and the overwhelming feedback was that they both came across hawkish. The market had priced in 350bps in cuts, then after all these meetings expectations dropped to 250bps in cuts, and now they end up disappointing with 300bps in cuts. But if we had not had the prior communication, then delivering 300bps on 350bps in expectations would have been seen as a positive hawkish message.

Net net - an opportunity has been lost I think, and the CBRT needs to think a bit about its communication with the market.

In the end though, inflation is around 35%, policy rates now at 43% and with compounding, much higher, so policy is tight. But is it tight enough to get to the CBRT's end year forecast of 28%? Not sure in my mind.

And all this will just raise questions again about the real independence of the CBRT.