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Erol Oytun Ercan
The Central Bank of the Republic of Turkey (CBRT), while Naci Ağbal’s tougher rate hike from the new president at their first meeting in two years, took a simplification step.
CBRT increased the policy rate by 475 basis points to 15 percent. The bank decided to fund all the funds from the weekly repository. In the text of the decision it was emphasized that the rigidity of the monetary stance will be maintained with determination.
“Today’s decision shows that the CBRT understands the economic situation and is willing to solve the problems.”
“We took a long position in TL entering the meeting and we positioned ourselves in accordance with the changes that Erdogan announced against the structural problems that TL faced.” said Nordea Asset Management emerging markets fund manager Thede Ruester, if Turkey’s orthodox policies would continue, said TL valued.
Ruest stated that they had taken short positions in TL before and that they trust the policy framework developed for now.
Regarding the decision, Ruest said: “The decision taken today shows that the CBRT understands the economic situation and is willing to solve the problems.” said.
“For CBRT to gain credibility in the markets, it will have to keep raising interest rates.”
In assessing the decision, Monex Europe currency markets analyst Simon Harvey said: “ Although the CBRT increased interest rates by 475 basis points, it not only increased the weighted average cost of financing difference by 20 basis points, but which also signaled markets to revert to the policies implemented in 2018. he said.
Emphasizing that President Naci Ağbal still has a lot of work to do, Harvey said: “The CBRT will have to keep raising interest rates to gain credibility in the markets.” added.
“The decision is that our expectation of an aggressive rate hike below remained. “
Toronto Dominion Securities Emerging Markets Strategy Manager Cristian Maggio shared in a research note: “The decision was in line with market expectations, but our aggressive rate hike was below our expectations. Still, markets got the signal they were expecting from CBRT, for now at least, “he said.
Stating that they expect simpler and more understandable moves in the coming months, Maggio said “this may require lawmakers to increase the weekly buyback rate by around 200-500 basis points to control inflation.” added.
It can go below 7.00
“The Central Bank took advantage of this meeting to positively influence the markets.” Piotr Matys, Rabobank’s emerging markets currency strategist, said raising the rate more symbolically than necessary would send a stronger message to markets.
Matys, while evaluating the comments from Turkish officials as very constructive and positive, stated that with rising interest rates, the dollar / TL could fall below 7.00 in 12 months:
“If market expectations come true, TL can gain value against the dollar and drop below 7.00. The selling pressure on the TL seems to be over for now. “
“We expect a level of 7.50 USD / TL during the first quarter of 2021.”
Tatha Ghose, Senior Emerging Markets Economist at Commerzbank, said: “I have to say that today’s decision was within expectations. This was a long-awaited change, “he said.
“We thought that the Turkish lira would reach level 9, but we no longer have that expectation.” Ghose said:
“We expect a level of 7.50 during the first quarter of 2021 and we believe that the TL will gradually weaken to 8.00.”
Naci Ağbal proved his worth against the markets
In evaluating the decision to raise the CBRT interest rates, emerging markets analyst Richard Segal said: “With the decision, there is no doubt that the Central Bank and the Ministry of Finance and Finance are moving away from political decisions and they are turning to orthodox policies. ” said.
Segal said that the rate hike was in line with expectations and was well received by the markets, saying that “the only problem is how long the new policies will be in place, but we should give the new administration 3-4 months” . added.
“Naci Ağbal has proven his worth against the markets, a good decision,” said Timothy Ash, senior strategist for emerging markets at BlueBay Asset Management. said.
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