INSTANT VIEW-Turkey’s central bank cuts rates again, hammering lira to record lows

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LONDON, Nov 18 (Businesshala) – Turkey’s central bank (CBRT) cut interest rates here on Thursday by another 100 basis points to 15%, pushing the lira below 11 lira-per-dollar to a new record low. Has been sent.

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Below is the reaction of financial market participants to the move:

Dennis Shen, Director, Sovereign and Public Sectors, Scope Ratings

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“The Turkish central bank’s 100bp rate cut on Thursday is likely to deepen Turkey’s economic difficulties and increase the likelihood of a full balance of payments crisis. In addition, if the lira continues to fall in value it could be a reflection of monetary policy. carries the risk of another sudden reversal.

“We have seen in the past exactly what happened in 2018: if a lira crisis gets ‘bad enough’, rates are eventually raised. The question is, how long before this watershed moment is reached by the lira And how much will have to fall. The currency has already fallen to record lows and is more than 30% weaker since February.

“However, the high political stakes involved in setting Turkey’s interest rates ahead of the 2023 elections make it difficult to reverse such a short-term pivot in Turkish monetary policy.

“Risk of political crisis by 2023, in addition to economic and lira crises, b/negative outlook represents weaknesses with bearing on forex credit ratings that we assign to Turkey.”

Muhammad Merkan, Chief Economist, Turkey, ING

“Overall, despite already heightened price and financial stability risks, rate cuts were widely expected in November, possibly aimed at providing support to the real economy.

“In this environment, further TRY weakness cannot be ruled out – we have seen USD/TRY parity rise by almost 30% in recent weeks – creating additional cost-based pressure. Accordingly, ex-posterior The real policy rate is now very negative and is set to remain so over the next year. This environment will likely worsen expectations and add to the already high inflationary pressures.”

and Ghosh, FX and EM Analyst, CommerceBank

“The cut was in line with expectations. This can be called damage control. If you keep it in line with the market expectations then you will not lose much on that day.

“They have suggested that they stop after another cut. The market would like to see if they do. They have said that they will stop first and then continue to cut, so the market wants more promises in December.

“(The lira falling through 11 lira per dollar) can happen without the central bank doing anything. More pressure could be seen from what the (US Federal Reserve) does in case of rate taping or more.

Fawad Razakzada, Analyst, ThinkMarkets

“The market clearly no longer takes CBRT seriously, as it has lost even the slightest of credibility. Erdogan is running the show. If it wants lower interest rates, it will get lower rates, no matter how high inflation or how the economy is doing. Hence, the CBRT chief said that the central bank will consider ending the rate cut in December, then it may even consider a new job!

“Unfortunately it is very difficult for the Turkish lira to see the light at the end of the tunnel. A falling currency could make holidays cheaper and boost exports. But foreign demand for Turkish products and services has been fueled by a currency crisis and inflation on the economy. To offset the negative impact of

Simon Harvey, FX Market Analyst, Monex Europe

“The initial reaction in the lira was mixed… with a rally that first made headlines suggesting an easing cycle would be assessed in December, before the broader statement was digested by the markets and sending USDTRY back closer to the 11.00 handle. be given.

“The renewed pressure on the lira was due to the terminology surrounding December’s forward guidance, which presented far less commitment than the headlines suggested to stop the cutting cycle.

“By throwing a bone into the markets in the form of December rate guidance, the CBRT avoided a full-blown currency crisis, but speculation on rates in the lira and Turkey will remain high. In our view, the USDTRY is just an Erdogan headline on inflation which is 11 th is away from slipping off the handle.”

Timothy Ashe, Emerging Markets Sovereign Strategist, Bluebay Asset Management

“Just a very ridiculous move. Really dangerous for Lira and Turkey.

“Zero justification for a cut, waiting to read the justification story for it from the MPC (Monetary Policy Committee).”

Jason Tuve, Senior Emerging Markets Economist, Capital Economics

“The sharp fall in the lira over the past few days was clearly not enough for Turkey’s central bank to stand up to President Erdogan as it proceeded with a 100bp cut (15.00%) in its one-week repo rate.

“How events unfold from here is extremely uncertain. In an accompanying statement, the CBRT indicated that it would ‘consider’ completion of its easing cycle in December – at least some attempt to assuage investor concerns about the policy background. But that will depend on the calm of Turkey’s financial markets.

“CBRT is now clearly at risk of creating a self-fulfilling cycle as its reluctance to tighten policy prompts further selling of Turkish assets (including the lira), raising inflation expectations and higher interest rates.” Rates further drive demand.The experience from 2018 is that the currency could experience an intra-day decline of more than 10%.

Reporting by London Markets Team and Istanbul Bureau Editing by Toby Chopra, Kirsten Donovan Compiled by Tommy Reggiori Wilkes


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