MPC: Better safe than sorry

TURKEY - In Brief 12 Jun 2019 by Murat Ucer
The Monetary Policy Committee left the short-term rates unchanged today in line with the expectations, including ours (see chart). In the past day or two, there had been some speculation that the CBRT could be tempted to ease rates today, given the relative stability in the lira and strengthening of rate cut expectations from the Fed. Although we never know with our central bank, we did not think this was very likely at all (or worth the risk), given the strong likelihood that such move could trigger – under the shadow of ongoing S-400 tensions and with only 7.5 business days left before the rerun of Istanbul elections -- politically damaging lira volatility.As for the content, there was no change in today’s statement regarding the Bank’s take on economic activity, but the section on inflation appears to have been amended – and in our view, in a visibly dovish direction. This section now reads:“Developments in domestic demand conditions and the tight monetary policy support disinflation. In order to contain the risks to the pricing behavior and to reinforce the disinflation process, the Committee has decided to maintain the tight monetary policy stance.”Compared with the following wording in the previous statement:“Developments in domestic demand conditions have led to some improvement in inflation indicators. Yet, higher food and import prices and the elevated course of inflation expectations point to continued risks to price stability. Accordingly, the Committee has decided to maintain the tight monetary policy stance until inflation outlook displays a significant improvement.”After all, better than expected inflation outcomes of the past two months and the upcoming ...

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