​MPC cuts more than expected, less than feared

TURKEY - In Brief 12 Sep 2019 by Murat Ucer

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The Monetary Policy Committee lowered the policy rate (one-week repo rate) by 325 bps today to 16.5%, about 50-75 bps more than the median expectations (of 250-275 bps cut), but this was, in effect, a compromise move of sorts because the magnitude of the cut was less than feared (350+ bps) by most observers/analysts.The current statement has about two differences from the previous statement that are worth mentioning. First, the Bank sounds a bit more upbeat on the growth outlook in this round, although our take remains that the growth picture is much more challenging than the Bank envisages. Second, today’s statement includes a new sentence at the end of the paragraph on inflation/monetary policy outlook regarding the policy stance -- “[a]t this point, the current monetary policy stance, to a large part, is considered to be consistent with the projected disinflation path” -- while leaving the rest of the paragraph almost identical. In principle, this statement could be interpreted as a slightly hawkish twist of sorts, but we read it more as a justification of today's move than anything else, and believe that more rate cuts are likely to come, as long as markets/currency allow it. Put differently, we see no reason to change our working forecast going forward that the MPC will continue to ease rates, as long as the currency/markets can handle it, given the Bank’s track record of often erring on the side of supporting growth, further politicization of the Bank since July under presidential orders and last but certainly not least what President Erdogan had to say just a few days ago about interest rate going to single digits.