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I am being asked by a fair few accounts for a view on this week's MPC meeting August 20.
At this stage I am not expecting any change across Turkey's benchmark rates, i.e. 3.5-7.25% IR corridor, with the repo rate staying at 4.5%. The CBRT is currently funding the market around the 6.5% level.
The above view has to come with a huge caveat/disclaimer attached as the CBRT under Governor Basci has a tendency to "fiddle" with lots of monetary policy tools now being deployed against multiple policy objectives, e.g. ROM, et al, but that said I still tend to think that they will opt to let the current mix work a little longer, as there has not been any significant changes in the economic variables since the last MPC meeting.
The main logic for the above is that the CBRT made it pretty clear in its last rate move last month that it is pretty loathed to do anything more decisive on the rate front after its 75bps hike for fear of further subduing real GDP growth.
The above could change though given the current fluidity across international capital markets and the pressure we are seeing on USTs, and EM FX in response. Herein note the continued weakness in liquid EM currencies, including BRL, INR, RUB and IDR. The TRYBASK is following in their slipstream, but I sense that the CBRT will be content as long as the lira remains within the EM pack, and net-net is not averse to a weaker TRY as this will help the current account adjustment and will act to underpin real GDP growth to some extent. Indeed, I still tend to think that the CBRT prefers a weaker lira to having to further hike policy rates in terms of forcing the rebalancing. I tend to think that US data flow will continue to support the tapering view, which will tend to drive further EM underperformance, and the lira will thus have a weakening bias - obviously not helped by its own large external financing needs.
The CBRT published its latest expectations survey yesterday and I did not read too much of significance from this it tends to be very backward looking, in terms of expectations being driven by the last data print. To summarise though survey recipients expect inflation to end the year at 7.3%, real GDP growth of 3.5%, the current account deficit at USD60bn, and the lira at 1.93 against the USD. I would expect weaker growth (2-2.5% perhaps), a lower CAD (USD50-55bn), higher inflation (more like 7.5-7.7%) and a weaker currency (I would guess a 2 handle seems more likely than not).
I am also frequently asked as to my bigger picture views on Turkey, post Gezi and with concerns building over Fed tapering. Well I remain a long term Turkey bull due to demographics, strong banks/corporate balance sheets, stable government, plus pro-business policy environment (okay am getting a bit more nervous here post Gezi, IR lobby and all that jazz), sound state of public finances (low deficit/debt ratios), diversified trade structure, and strong business (get up and go, particularly in terms of export markets) culture more generally in Turkey. That said, what worries me is short term demand management, and the big external financing requirement. I still tend to think that the currency is too strong, and rates too low still to ensure the wide external financing requirement (~USD210bn, i.e. double FX reserves, and 25% of GDP) is closed quickly enough against a backdrop of tighter global liquidity conditions and higher financing costs. But, the good news is that given Turkey's strong overall balance sheet still, I think it should be able to live with the kind of FX/rates adjustment required, without this creating broader systemic risk throughout the economy. This would suggest that there will be opportunities to buy Turkish risk, but not just yet, as I prefer to see a more substantive adjustment in rates/FX so as to moderate those large external imbalances, and we are not there yet.
bne- Standard Bank
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