Turkish Central Bank meets for last time in 2016 today, expected to keep rates unchanged
by Daily Sabah with Wires
ISTANBULDec 20, 2016 - 12:00 am GMT+3
by Daily Sabah with Wires
Dec 20, 2016 12:00 am
The Central Bank of the Republic of Turkey's (CBRT) Monetary Policy Committee (MPC) will hold its last meeting of 2016 today. The Central Bank is expected to pass this month without increasing interest rates.
Turkey's Central Bank raised its benchmark one-week repo rate by 50 basis points from 7.5 percent to eight percent at the Monetary Policy Committee's meeting last month.
The upper band of the interest rate corridor (marginal funding rate) was also increased by 25 basis points to 8.50 percent and the lower upper band of the interest rate corridor remained unchanged at 7.25 percent.
Making assessments regarding the said situation, Destek Yatırım Research Manager Murat Tufan suggested that the CBRT is likely to pass an interest rate hike this month and follow a "wait-and-see" policy.
Recalling that following the U.S. elections, Donald Trump made statements suggesting that he would follow policies to increase growth and inflation rates, Tufan underlined that the main message from the recent U.S. Federal Reserve meeting indicated that these policies be followed closely and signals that the interest rate stance can be revised in this sense.Tufan recalled that the CBRT gave the message "I am here" to the Turkish lira, which has been experiencing depreciation due to global developments in the last two months and raised the short-term interest rates at the MPC meeting in November for the first times in three years.
Tufan stated the fact that the Fed emphasized the interest rate hike in 2017 could increase from 2 to 3 percent during its recent meeting shows that the dollar will continue to gain value against emerging and developed country currencies in the coming year, stressing that this will especially cause the central banks of developing countries such as Turkey to revise their interest rate policies.
Tufan said that regarding the interest rates, there are two options for the Central Bank at the MPC meeting to be held this week.According to Tufan, in the first scenario, the Central Bank may want to make a clear interest rate decision and therefore pass the meeting this month after Trump takes office and make statements in January.
Another important development that may affect the Central Bank to make such a decision is the relative decrease in the exchange rate's wavelength due to the end of the year and the expectation that it will be balanced at the 3.50 level. If the CBRT leans towards the "wait-and-see" policy, the resistance level of 3.5280 can come to the fore in the U.S. dollar-TL parity. If this level is broken, then the 3.5460 level may come to the agenda.
Another scenario that Tufan suggests is that there will be a double interest rate hike just like the previous month in order to prevent the hike in the exchange rate stemming from the reflections of the "falcon" statements that partly came to the fore during the recent Fed meeting and Trump's possible fiscal policies. Noting that in a similar scenario, TL assets will strengthen, Tufan said if the 3.4750 level in the dollar-TL parity is broken, the regressions may gradually progress towards the region of 3.4520-3.4200, and it will be really important to break the 3.4200 level in order to start a new falling trend.
Murat Tufan also suggested that the Central Bank may pass this month's interest breakdown and follow a wait-and-see policy due to the perception that the Fed will not increase interest rates in the spring period, partly calming the wavelength, and its willingness to see how Trump's statements will affect the dollar after he takes office.
Goldman Sachs assesses CBRT will keep interest rates steadyAccording to a Goldman Sachs's report published on Friday, the CBRT is expected to keep financial conditions as loose as possible. Goldman Sachs' economists think the CBRT will keep the financial conditions as loose as possible, even at the expense of the weakening Turkish lira and the temporarily higher inflation rates.
Goldman Sachs analysts, including Clemens Grafe, think that the CBRT will not change its overnight lending rate and weekly repo rate in Tuesday's meeting. The median expectation of economists participating in the Bloomberg News survey was a 25-basis-point increase in the overnight lending rate.
Goldman noted in the report that Turkey's weakest point continues to be the external balance and the low saving rate while the depreciation in the exchange rate may cover a certain distance in addressing these issues, the currency mismatches can bring a sharp fall in asset quality and cause banks to be unwilling in giving loans.