20 Jul 2015
CBRT seen ‘on hold’ this week – TDS
FXStreet (Edinburgh) - According to Strategist at TD Securities Cristian Maggio, the Turkish central bank would keep its rates on hold tomorrow.
Key Quotes
“We expect the CBRT to keep all key rates unchanged at the July 23 meeting, i.e. the repo rate at 7.50%, the overnight lending rate at 10.75%, and the O/N borrowing rate at 7.25%. This is in line with the almost unanimous consensus expectation”.
“The Bank, however, has already addressed the issue of negative lira pressure until the June election and inflation running above target by tightening short-term liquidity conditions, which has caused the CBRT’s average funding cost to hover for some time at ca. 100bp above the benchmark repo rate”.
“The Bank will continue to observe domestic and international developments, with the crucial risk factor being the question of whether a government coalition is formed by August 23, or whether early elections are called”.
“If a coalition is announced soon (and an AKP+CHP scenario is becoming the most likely scenario after the MHP declared its intention to remain an opposition party), politics will have bought the CBRT extra time to keep interest rates at current levels and perhaps allow the MPC to ease TRY liquidity conditions until the Fed hikes rates (possibly in September). This could even help USDTRY to fall from current levels at around 2.6930 down to the low 2.60s”.
“But if snap elections are called, we see the lira aggressively selling off and the CBRT left with very few options, the most effective of which would be to hike rates. If this happens. It will be ahead of the Fed lift off, therefore suggesting that political risks remain the most important performance driver for USDTRY for now”.
Key Quotes
“We expect the CBRT to keep all key rates unchanged at the July 23 meeting, i.e. the repo rate at 7.50%, the overnight lending rate at 10.75%, and the O/N borrowing rate at 7.25%. This is in line with the almost unanimous consensus expectation”.
“The Bank, however, has already addressed the issue of negative lira pressure until the June election and inflation running above target by tightening short-term liquidity conditions, which has caused the CBRT’s average funding cost to hover for some time at ca. 100bp above the benchmark repo rate”.
“The Bank will continue to observe domestic and international developments, with the crucial risk factor being the question of whether a government coalition is formed by August 23, or whether early elections are called”.
“If a coalition is announced soon (and an AKP+CHP scenario is becoming the most likely scenario after the MHP declared its intention to remain an opposition party), politics will have bought the CBRT extra time to keep interest rates at current levels and perhaps allow the MPC to ease TRY liquidity conditions until the Fed hikes rates (possibly in September). This could even help USDTRY to fall from current levels at around 2.6930 down to the low 2.60s”.
“But if snap elections are called, we see the lira aggressively selling off and the CBRT left with very few options, the most effective of which would be to hike rates. If this happens. It will be ahead of the Fed lift off, therefore suggesting that political risks remain the most important performance driver for USDTRY for now”.