At its meeting of the Monetary Policy Committee (MPC) on 12 September, Turkey's Central Bank lowered the one-week repo rate by 325 basis points, overshooting market expectations of a 250 basis-point fall, taking the policy rate down to 16.50 percent from 19.75 percent.
The decision to vigorously trim the interest rate once more, after July's one-week repo rate dropped by 425 basis points, was driven by an enhanced outlook for inflation. A fairly stable Turkish currency helped the latest disinflationary route, raising inflation expectations and weak domestic demand. On that basis, the Bank noted that it expects inflation this year to be moderately below the July prediction of 13.9%.
In the corresponding press release, the Central Bank essentially struck a similar tone to its last session and reiterated that "needs a prudent monetary stance to continue the disinflation cycle." It also noted, however, that "at this stage, the current monetary policy stance is considered largely consistent with the expected disinflation course." As such, further rate cuts are not necessarily a forgotten inference, but should be more incremental.
The research team at Goldman Sachs stated that the last comment lowered investor expectations of more rapid rate cuts, noting that "the decision seems to have shocked the market on the hawkish side, given that the TRY has strengthened its effect[ as concerns of further substantial rate cuts] now seem to have declined." Nevertheless, Mercan noted that the Bank must step forward with caution as inflation expectations are not well grounded, future economic policy remains uncertain, geopolitical risks exist, and dollarization is high.
FocusEconomics Consensus Forecast panelist see the CBRT continuing to loosen the one-week repo rate by 16.36% and 13.81% in 2020.