MPC: Back from the brink, again…

TURKEY - In Brief 13 Sep 2018 by Murat Ucer

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The Monetary Policy Committee raised the policy rate (weekly-repo) by a markedly higher than expected 625 bps to 24% at today’s meeting, from 17.75% earlier. As all funding was being provided at the O/N rate of 19.25%, the move corresponds to a 475 bps hike, de facto, assuming all funding will now go back to the weekly window (see chart). In terms of the statement’s content, there is not much of a change from the previous statement, except for a stronger emphasis on and acknowledgment of the worsening in inflation dynamics.The hike provides a relief of sorts as it is the first bold-ish move in a long time, which should help the lira recoup some of its massive losses, particularly since August (which it partially had at this writing). Then again, a trend lira appreciation is unlikely, in our view, given the tough balance of payments arithmetic (see our Racing Against Time, September 2, 2018), a much more onerous funding environment and the very distortionary and discretionary policy environment (increasingly characterized by haphazardly interventions and bans, at times by decree).Going forward, we are now looking to MTEP on the economics side of things, which should be out in a week or two, because, as we’ve noted last Sunday (AKP’s Education By Fire, September 9, 2018), it looks like “this particular MTEP will be Ankara’s last chance to convince investors that it has, 1) made the right diagnosis on what has been ailing the economy, 2) set itself, accordingly, realistic and consistent macro targets, and 3) formulated a coherent policy framework to deal with the “hard landing” that the economy is undergoing now and to place it on a more positive trajectory.” As regards t...