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Summary of Document: Turkey - No Pre-emptive Easing

Core Content

The document provides an analysis of the Central Bank of the Republic of Turkey (CBRT)'s decision to keep the late liquidity window (LLW) rate unchanged at 12.75% following its Monetary Policy Committee (MPC) meeting on 18 January. This decision aligns with market expectations and the firm's prior forecast. The CBRT's stance reflects its commitment to maintaining a tight monetary policy until inflation and inflation expectations show a significant and sustained improvement.

Key Information

• Interest Rate Decision: The CBRT left the LLW rate at 12.75%, consistent with the firm's call and market consensus.
• Inflation Outlook: The CBRT is not planning to ease monetary policy pre-emptively and will wait for long-term inflation expectations to fall to around 7% year-over-year (y/y).
• Headline Inflation: Headline inflation is expected to decline due to base effects, but the CBRT is looking through these temporary declines to assess more lasting trends.
• Inflation Target: The inflation target is 5%, with a 2 percentage point (pp) uncertainty band. Current long-term inflation expectations are 8.2% y/y, which remains above the target.
• Corridor Rates: All other corridor rates were unchanged, and the average repo funding rate is expected to remain at 12.75%.
• Forward Guidance: The CBRT emphasized that it will not ease policy pre-emptively, a message that is likely to be reiterated in the upcoming January Inflation Report.

Main Views

• The CBRT is not reacting to short-term inflation declines due to base effects, and instead focuses on sustained improvement in inflation expectations.
• Inflation expectations are a key factor influencing the CBRT's decision-making process.
• The firm believes the threshold for easing is high, as the real interest rate will still increase even if inflation expectations worsen.
• The CBRT is maintaining a tight monetary policy stance, which is expected to continue in the short term.

Charts Mentioned

• Chart 1: CBRT's interest rate corridor (in %).
• Chart 2: CPI inflation and BNP Paribas forecast (in % y/y).

Contact Information

Emerging Markets Strategy Contacts

Production and Editorial Contacts

Legal and Compliance Notes

• The document is non-independent research and may be subject to conflicts of interest.
• It is not investment research under MiFID II and should not be used for investment decisions.
• Performance data may be based on simulations and is not indicative of future results.
• Indicative prices are not actual transaction terms and may vary significantly.
• Confidentiality: The document is for the use of intended recipients only and may not be distributed without prior consent.
• Regulatory Disclosures: The document includes various disclosures for different jurisdictions, including the U.S., UK, France, Germany, Belgium, Ireland, and Italy, highlighting the legal and compliance context in which the report is issued.
• Investment Risks: The document notes that investments may involve high risk, including market, credit, and liquidity risks.
• No Investment Advice: The information is for informational purposes only and does not constitute investment, tax, or legal advice.

Additional Information

• The BNP Paribas Global Fixed Income Website is mentioned as a source for further information.
• The document includes important disclosures for options, ETFs, and convertible securities, emphasizing the risks involved and the need for proper risk management.
• STEER™ is noted as a trade mark of BNP Paribas.