MACRO VIEWS: Eastern Europe’s China?Turkey’s outlook was revised lower from positive to stable by Fitch mainly due to rising inflation expected to reach 9.2% by the ratings agency and a current account deficit expected to widen to -9.8% by end of year.
On November 23rd, the CBT’s MPC held the benchmark policy rate (essentially the 1-week repo rate) and the overnight interest rate corridor unchanged at 5.75% and 5-12.5%, respectively, with primary dealers paying the upper end of the overnight i-rate corridor.
Despite rising inflation expectations and relatively firm growth (8.8% Q2 GDP y/y); depleting currency reserves ($85.2bln on November 18th vs. $87.2bln on the 11th), a growing current account deficit, and intensifying external growth risks sees the CBT implement unconventional measures - mostly liquidity management - to defend against excessive lira weakness.
Data Watch – OCT Trade Balance (NOV 30), NOV Manufacturing PMI (DEC 1)
On November 23rd, the CBT’s MPC held the benchmark policy rate (essentially the 1-week repo rate) and the overnight interest rate corridor unchanged at 5.75% and 5-12.5%, respectively, with primary dealers paying the upper end of the overnight i-rate corridor.
Despite rising inflation expectations and relatively firm growth (8.8% Q2 GDP y/y); depleting currency reserves ($85.2bln on November 18th vs. $87.2bln on the 11th), a growing current account deficit, and intensifying external growth risks sees the CBT implement unconventional measures - mostly liquidity management - to defend against excessive lira weakness.
Data Watch – OCT Trade Balance (NOV 30), NOV Manufacturing PMI (DEC 1)
TRY – FX VIEWS: EUR/TRY FAIRLY IMMUNE TO EM FX SELL-OFF
- Positioning seems heavily skewed to the long side in USD/TRY but more moderate for EUR/TRY longs due to broad market expectations that the CBT will not shift its current monetary policy direction towards a more conventional and transparent stance.
- This increases the risk, however, for the market to be taken by surprise if the central bank decides to shift to a more orthodox policy measure by hiking the main policy rate. If such a scenario were to materialize, outsized TRY gains would likely follow suit.
- The euro may emerge as the preferred funding currency for potential TRY longs due to downside EUR implications stemming from the recent spate of disappointing data and Euro-area headlines in addition to improved positive carry value for short EUR/TRY positions on the back of divergent CBT/ECB rate paths.
- Despite a move back up towards the 2.5000 figure, relative EUR/TRY outperformance continued – EUR/TRY losses amounted to less than -1% compared to EUR/PLN & EUR/HUF losses of about -3% for the week-ending Nov. 25th.
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