MPC disappoints, keeps rates unchanged

TURKEY - In Brief 24 Jul 2018 by Murat Ucer

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At today's meeting, the Monetary Policy Committee did not change any of the short-term interest rates, keeping one-week repo rate (policy rate) at 17.75% and O/N lending and borrowing rates at 19.25% and 16.25%, respectively (see graph). Recall that at the June 7th meeting, the MPC had ‘overdelivered’ of sorts, hiking all short-term rates by 125 bps, versus consensus expectations of around 50-75 bps. Atop this, the newly appointed Treasury and Finance Minister Mr. Berat Albayrak’s reasonably orthodox statements (including in support of CBRT independence) had raised hopes that the Bank could at least give markets a replay of June, if not more, given that the Bank is still behind the curve. So, today’s move is a huge disappointment for markets, which raises bigger and more worrying questions on the new administration’s broader ability to translate talk into action or deliver any meaningful policy adjustment.As for the content of the statement, we compared the current and previous statements below in a table format and added a bit of commentary. To put it informally and more concisely, the Bank seems to be saying that, “we have done enough, the economy is slowing quite visibly anyway (which should be enough to tame inflation), we need support from fiscal policy, which we will be monitoring, and we shall keep the current stance for an “extended period” of time.” The latter amendment seems to have been inserted to avoid actual tightening by way of committing to stay tight for the foreseeable future (as a standard resort to forward guidance), but it is unlikely to do the job in the current environment.