The Turkish Central Bank postponed the market’s expectations for an interest rate cut with two major wording changes in the September MPC text, which also increased the comments that a rate cut may come in the last months of the year. The Monetary Policy Committee text, which clearly stated that there would be no more interest rate hikes, reiterated the tight and prudent stance.
The MPC of the Central Bank announced its September decision. While the policy rate was left unchanged at 50 percent in line with expectations, the market interpreted the MPC decision text, which included changes compared to previous months, as a transition text.
Both the statement that services inflation will start to improve in the last quarter and the statement that monetary policy tools can be used instead of tightening increased the perception that the Central Bank has started to soften, while it was noteworthy that the MPC text included the reiteration of the precautionary stance as well as the continuation of the tight monetary policy.
Following the easing steps of the Fed and the European Central Bank, as the Turkish Central Bank reiterated its tight stance, the rise in the banking index exceeded 3 percent in the market, and reached 2 percent in the BIST1000.
Since June last year, the Central Bank has raised the policy rate by 4,150 basis points to 50 percent, the last one in March. In the last 6 meetings, including September, the policy rate was left unchanged at 50 percent while the tight stance was maintained. While the decline in inflation due to the base effect intensified the interest rate cut discussions, these discussions were postponed as the Central Bank maintained the ‘hawkish’ stance after each MPC.
HOW DID EXPERTS INTERPRET THE CENTRAL BANK DECISION?
INTEREST RATE CUTS MAY START IN NOVEMBER
Dr. İnanç Sözer, Managing Partner at Virtus Glocal: Although the CBRT has signaled a partial softening since the previous meeting, it continued to emphasize that it still needs a sustained real appreciation in the Turkish lira and an improvement in inflation expectations to cut interest rates.
Although the rigidity of prices, especially in the services sector, has led to a postponement of the rate cut, given our expectations for the data in the coming days, there will soon be a consensus on starting rate cuts in November.
THE CENTRAL BANK HAS PREPARED A TRANSITION TEXT
TOBB ETU Faculty Member Assoc. Prof. Dr. Atılım Murat: There are two major changes in the MPC compared to the previous text. The first is the emphasis on services inflation, which is expected to improve in the last quarter. Secondly, the announcement that monetary policy tools will be used effectively instead of the monetary policy stance will be tightened.
Since the statement that the Central Bank will tighten monetary policy tools other than interest rates has been removed, it has become slightly dovish. The Central Bank wanted to prepare a transition text when we look at the two changes. It does not signal an immediate interest rate cut but can be considered a transitional text. It intends to prepare the market for interest rate cuts gradually. The Central Bank will announce an inflation report in early November. Before that, it will have seen the US elections and October inflation. The inflation report may give the first signal for a rate cut. As far as I am concerned, the first rate cut is likely to be at the December meeting.
