Page 3 - bne_newspaper_February_01_2019

Top Stories
February 1, 2019 www.intellinews.com I Page 3
forecast of a 1% rise corresponding to an annual CPI increase at 20.3% remaining unchanged against the 2018YE level. We maintain our house forecast at 0.8% implying annual inflation at 20%,” Ozlem Bayraktar Goksen of Tacirler Invest said in a research note on the central bank’s inflation report, adding: “We believe that the recent SCT [special consumption tax] rise on tobacco products will be influential in the course the inflation in the coming period. Yet it is still unknown to what extent the adjustment will be reflected into end-prices.”
Serkan Gonencler of Seker Invest said in a re- search note: “The CBT’s projected inflation path indicates its expectation that CPI inflation is likely to witness some increase until April-May (remain- ing above 20%) and decelerate in 2H as the base effects kick in. This is actually in line with our and market’s expectations. Needless to say, this is de- pendent on a stabilization of the TRY [Turkish lira], i.e. avoiding another swift depreciation. Therefore, we maintain our view that the CBT will be patient until late 1H / early 2H before initiating a rate cut cycle. Even if it considers an earlier rate cut (let’s say in April), this might be just a symbolic move (i.e. to the tune of 50bps cut).”
“Today’s report shows that the central bank will avoid premature easing given the reiterated policy guidance with a promise to further deliver mon- etary tightening if needed,” Muhammet Mercan of ING Bank remarked in a research note.
‘Rate cut may be in Q2’
“[The latest inflation report] indicates that interest rates will not be lowered ahead of the March local elections,” Piotr Matys of Rabobank told Reuters, adding: “The lira will basically continue to play an important role, and if the currency continues to appreciate or at least remain stable and inflation continues to fall, then perhaps the central bank could cut rates in Q2.”
According to the latest Reuters poll, there is an expectation that Turkey’s policy rate will be cut to 19.75% at end-2019 from the current 24%.
“Turkey has the highest nominal interest rates
in the emerging world, however, we think falling inflation, the recent strength of the lira and politi- cal pressure will prompt the CBRT to cut rates sooner rather than later,” Capital Economics said on January 25 in a research report.
On governor Cetinkaya’s pledge to keep a tight monetary policy stance, the TRY gained 0.87% d/d against the USD to trade at 5.2683 as of around 15:00 local time.
Three-month implied volatility for the lira slid to its lowest level in about half a year after the cen- tral bank’s statements, Reuters reported.
Turkey’s 10-year benchmark domestic bonds fell by 28bp to below 15%, Bloomberg reported on January 30.
“Return to orthodoxy”
“Markets appreciating the CBRT's return to ortho- doxy. In my mind, growth, inflation and the current account deficit will all surprise on the downside this year,” Tim Ash of BlueBay Asset Management said in a note to investors, commenting on the falling bond prices.
“Crucially, we doubt that there has been a funda- mental shift back to orthodox policymaking at the central bank and, as such, Turkey’s longstanding inflation problem is likely to be left unchecked. As a result, inflation and interest rates will remain higher than they were prior to the lira crisis,” Cap- ital Economics said on January 29 in its Emerg- ing Europe Economic Outlook report, adding: “In order to prevent the real exchange rate from ap- preciating and to maintain Turkey’s external com- petitiveness, the lira will need to fall further – we expect it to end this year at 6.25/$ and to end 2020 at 7.00/$. The consensus expects a more gradual decline in the currency to 6.50/$ by end-2020”.
“The Treasury has been signalling a different do- mestic borrowing strategy since November. If the cash accounts are strong, the Treasury cancels some of the auctions previously scheduled or taps