Despite the Dollar Index surging against EM F/X after a gate-busting US NFP data, the Turkish lira climbed nearly 1 percent, recovering from its steep dive last session when lower-than-expected inflation data had investors betting on chances that the central bank (CBRT) could make a premature rate cut. After Capital Economics which called for a rate cut in 18 January Central Bank of Turkey MPC meting, Commerzbank analyst Thu Lan Nguyen joined the chorus. Two participants present at economy czar Albayrak’s get-together with economists and financial journalists reported that they were asked their advice regarding the timing of monetary easing.
Commerzbank: CBRT to act “very soon”
Thu Lan Nguyen commented in Commerzbank’s daily currency round-up:
Consumer prices in Turkey stabilized in December (on a seasonally adjusted basis) compared with the previous month. With an inflation rate of now “only” 20.3% and a key interest rate of 24%, the real interest rate is thus clearly in positive territory. Were the concerns regarding the independence of the central bank completely unjustified in retrospect and would the Turkish lira not have to return to the levels seen before the crisis in the summer of last year?
The thankless answer to this question is: it depends. First and foremost on how steadfast the Turkish central bank (Türkiye Cumhuriyet Merkez Bankası, TCMB) is in maintaining its high interest rates in order to further and above all sustainably reduce inflation. In this favorable case, a further recovery of the lira could indeed be expected.
However, in view of the experience of recent years, it is highly doubtful that this will happen. It seems much more likely that the central bank will take advantage of the hour to lower its key rate again very soon. Combating inflation with minimal effort, so to speak.
Although this does not necessarily justify another sharp depreciation of the lira, as we saw last year, it does in any case speak against a significant appreciation.
Economist-columnist Dr Selva Demiralp: Albayrak pondering timing of monetary easing
Former Fed staffer, academician and Daily Milliyet Columnist Dr Selva Demiralp was present at Minister Albayrak’s New Year meeting with economists. Her account is corroborated by another participant, Daily Hurriyet columnist and Ankara insider Mr. Erdal Saglam.
In her Friday column Demiralp complemented Albayrak for inviting a diverse group of economist and for his willingness to listen.
The Minister particularly wanted to know when it would be appropriate to cut rates, given that inflation is on a Southbound trajectory. Most advised for a prolonged tight stance, to break the back of sticky inflation expectations. While some participants suggested March may be an opportune date, Demiralp and the majority advocated a much longer time period of tight policy.