LONDON (Reuters) -Turkey's central bank cut its policy rate again as expected by 100 basis points to 14% on Thursday despite inflation soaring above 21%, sending the lira to a fresh record low.
Below is the reaction from analysts to the latest move:
JAKOB CHRISTENSEN, DANSKE BANK
"We expect that even though they are now staying on hold, the fact that inflation will be peaking further, and that the U.S. central bank is in a tightening mode, there's a bias towards a weaker lira."
"I am concerned about the inflation outlook in the next two to three months, as the sharp weakening in the lira feeds through... inflation will definitely go above 30%."
HALUK BURUMCEKCI, BURUMCEKCI CONSULTING
"(The central bank) at least giving the signal that it won't lower interest rates until March is a limited positive development for the Turkish lira... The central bank will most likely try and navigate this period by using macroprudential tools, primarily required reserves, and by resorting to direct forex sales in the market at times. In other words, without raising interest rates."
"Considering inflation in Turkey will rise to 35% and more mid-next year due to the recent lira outlook, the possible minimum wage hike, significantly deteriorating inflation expectations and the global inflation backdrop we think these measures will not be enough and the bank will have to raise the policy rate in the not-so-distant future."
JOHN HARDY, SAXO BANK
"Turkey cuts 100 bps to 14.0% as expected, but still unbelievable"
DENNIS SHEN, SCOPE RATINGS
"The central bank's tolerance for lira pain certainly appears much higher this go around with (President Tayyip) Erdogan now more or less fully in charge of rates policy."
"The only thing is that even if destabilising lira devaluation is somehow being fully justified away as being good for correction of the current account and raising exports, now that the lira crisis is starting to have an effect on dampening growth conditions – whether such weakening economic growth might force Erdogan to change course ahead of elections by 2023?
"If so, any 'change of course', however, may not mean a rate hike immediately even if the central bank pauses rate cuts at least over the near future, instead potentially meaning capital controls, more FX swaps with domestic banks and friendly allies, and use of reserves to support lira should lira sell-off pressures continue."
JASON TUVEY, CAPITAL ECONOMICS
"Today's move provides further evidence, if any were needed, that macro developments are playing little role in the CBRT’s policy formulation."
"The accompanying statement suggests that the easing cycle will be on pause early next year but, even so, the lira will remain under pressure and capital controls are likely."
IPEK OZKARDESKAYA, SWISSQUOTE BANK
"The central bank of Turkey made the decision to pull the rates 100 basis points lower despite a heavy objection from the market. It is a bold move that will certainly cost Turkey a lot of money, and headache. The knee jerk reaction is a heavy selloff in the lira. I expect the USD-TRY to end the year within the 17-19 band."