MPC: Positive Surprise, Fuzzy Statement

TURKEY - In Brief 25 Apr 2018 by Murat Ucer

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The Monetary Policy Committee hiked the Late Liquidity Window (LLW) rate by a somewhat higher than expected 75 bps, to 13.5%, leaving all other rates unchanged (see chart). Expectations were a bit all over the place before the meeting, but they had more or less (including our own, broadly speaking) clustered around a 50 bps hike of the LLW rate. That being said, the two opposite tails -- a bolder hike with some framework simplification versus no hike at all -- also entertained nontrivial probabilities, as far as we could read the pre-meeting expectations among analysts.In terms of the wording of the statement, there are a few points that are worth highlighting. Perhaps most importantly, the sentence on inflation outlook has been revised so that the generic phrase, “[c]urrent elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior” is now followed by “[u]pside movements in import prices have increased such risks”, which has replaced the phrase, “[u]nderlying trend indicators display inertia and the core inflation remains elevated” of the previous statement. The addition is self-evident in the light of rising oil prices and weaker lira (as we presume what’s meant here is import prices in liras), but why the latter phrase on elevated core and inflation inertia should be dropped is not at all obvious to us. Recall that this latter phrase had been added for the first time to the March meeting statement, which we had welcomed as an acknowledgement, albeit belatedly, of a long-running problem. Given that both core inflation and inflation inertia remain elevated, we read this removal as a somewhat confusing and ultimately dovish s...