Basci Disappoints those Expecting a Hawkish Message
Today's TV appearance by CBT Governor Basci, which was announced last night, was targeted at improving the predictability of monetary policy, as Governor himself stated it. The market was mainly focused on the future course of monetary policy, expecting the Governor to send hawkish messages to calm the continuing market unease, specifically on the lira front. But we think the Governor did almost the exact opposite, saying, in a nutshell: "we have no problems with the exchange rate and do not expect a rate hike." When the two are combined, the implication is clear: we should prepare for a weaker lira, which has -- as a matter of fact -- begun to happen as the Governor spoke...Basically, the Governor seems to think that the current interest rate range between 6.75%-7.75% is enough to clear the market, and investors have yet to understand this -- in other words, there is mis-pricing in Governor's view, and the Bank wants to hold the current line until the market comes to the Bank's view. As a side, we felt that the Governor's remarks were long on words, short on deeds: He gave a point estimate for the TL/$ for yearend (1.92), said they would defend the lira "like lions" (a Turkish saying translated), and have instruments that he does not want to reveal (to render them more effective). On the whole, we find Governor's remarks rather dovish, which means that pressures on the lira are likely to continue a while longer, barring a very favorable turn in the global environment.