Turkey: More than just a simple 25bps cut from CBT – Deutsche Bank

Research Team at Deutsche Bank, notes that the Central Bank of Turkey (CBT) lowered its O/N lending and late liquidity widow lending rates by 25bps each to 8.75% and 10.25%, respectively in line with median market expectations.

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“The Bank's main funding tool, one-week repo, and O/N deposit borrowing rate - lower band of rate corridor - were kept unchanged at 7.5% and 7.25%, respectively. We think yesterday’s cut revealed important clues about policy-making under new Governor Cetinkaya. While we already suspected about the Committee's over-focus on growth, today's move formally justified our assessment, probably at the expense of additional credibility loss as an inflation-targeter.

The decision also insinuates that the Bank is likely to have a discretionary type of policy-making, shifting modes easily. Assuming global conditions remain favorable and domestic political risks are contained from here, we think the O/N lending will be reduced further to 8% in the coming months with a steady one-week repo at 7.5%. The switch to a single policy rate (at 7.5%) is also likely to take place by end-Q3.”