The Turkish central bank (CBT) held rates unchanged yesterday, as had been unanimously expected, but turned somewhat dovish in its language, contrary to our expectation. CBT removed some language related to inflation uncertainty from its statement and seemed to emphasise disinflationary developments over and above other risks. Most central banks tend to state, generically, that they will maintain a tight monetary stance and ensure all other measures until inflation expectations had fully converged – CBT also conveys this, of course – but such a generic promise is not an assurance that the CB will not lower rates, Commerzbank’s FX analyst Tatha Ghose notes.
USD/TRY surpasses the 34.50 level earlier this week
“We can witness within regional examples, for example the Czech National Bank, that a CB can steadily cut rates but still call its policy restrictive. In this sense, if CBT were to cut the interest rate from 50% to 45%, it could possibly claim that 45% still makes for a very restrictive monetary policy. A play with words mostly.”
“In our view specifically, a rate cut already at the next meeting (26 December) would qualify as premature. This is because we have only had one month of underlying inflation moderation (October). We repeat on these pages that the fresh rate of price increase (month-on-month, seasonally-adjusted) is still far too rapid in Turkey – and the economy has barely begun to cool down. Some measured rate cuts would be justified as and when a clear disinflationary trend has been established at underlying level (not year-on-year rate of change).”
“The idea of immediate rate cuts may trigger speculation about whether or not there was pressure from President Tayyip Erdogan – which would be all negative for the lira. USD/TRY surpassed our 34.50 year-end forecast earlier this week, and we may have to revise our 2025 target higher in the event that CBT’s future actions appear ‘pre-ordained’ rather than data-dependent.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.