Flash Report / Turkey

Turkey central bank delivers on rate hikes

  • Today, the CBRT hiked rates 475bps to 15%, in line with expectations, and unified policy around the repo rate
  • Hike is symbolic, but shift away from corridor is positive and will help restore credibility; TRY up by c2% in response
  • Remains to be seen if this is durable shift in policy or if Erdogan will push for lower rates once TRY stabilises
Turkey central bank delivers on rate hikes

Today, the CBRT, under the leadership of its new governor, Naci Ağbal, hiked the one-week repo rate by 475bps to 15%, in line with the median estimate of 25 analysts surveyed by Bloomberg. It also committed to provide all funding through the one-week repo rate, “which will be the main policy tool and the only indicator for the monetary stance.”

The rate hike is largely symbolic, as the average cost of funding was at 14.8% yesterday and the late liquidity window (the upper band of the rate corridor) was at 14.75%. However, the shift away from Turkey’s convoluted rate corridor system will increase monetary policy transparency and credibility.

CBRT cost of funding

Markets have applauded the move, with TRY rallying by over 2% versus the dollar at the time of writing. This brings the rally to c13% since the leadership changes at the central bank and finance ministry the weekend of 7-8 November.

Lira to dollar exchange rate

Related reading

Lira rally continues as Erdogan appears to make policy U-turn, 11 November

Lira set for big moves amid leadership changes and central bank and MoF, 9 November

Old habits die hard as central bank reverts to stealth tightening, 22 October

Turkish gold rush (in one chart), 5 October

Net reserves continue to plummet (in one chart), 2 October

Charting Turkey’s currency crisis, 21 August


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