MPC leaves rates unchanged, as expected
In line with the consensus, the CBRT’s Monetary Policy Committee (MPC) kept the policy rate (one-week repo rate) at 24% (simple) today. Recall that this is the third consecutive meeting that the Bank left rates unchanged, since it had raised the policy rate by 625 bps on September 13th (see chart).Today’s statement is exactly the same with the previous statement, having also kept the “relatively” hawkish reference to inflation outlook – that despite some improvement in inflation dynamics, risks to price stability prevail, and hence, the tight monetary policy stance is to be maintained “until inflation outlook displays a significant improvement.”At the moment, we think the Bank is likely to leave the policy rate unchanged at its next meeting (on March 6) as well, which is the last meeting before March 31st elections, although 6+ weeks is a long time, in Turkey in particular. So far, Ankara has been responding to the slowdown through varieties of heterodox means (including quasi-fiscal measures), leaving the traditional monetary and fiscal policy levers relatively unscathed. We think this stance will prove increasingly unviable and ineffective, however, with both monetary and fiscal policies both coming under pressure in due course, which carries the potential for a market backlash, although predicting the exact timing of this remains elusive.