The Central Bank of Turkey (CBRT) will announce the results of its latest monetary policy committee meeting at 1100GMT on Tuesday. As US firm Morgan Stanley (NYSE:MS) wrote on Monday this is "much anticipated" and "expected to result in hikes, but the key question remains by how much." The US firm French bank Societe Generale (PA:SOGN) anticipates that anticipate that "the CBRT will hike the benchmark one-week repo rate by 50bp to 8.50%, and hike the overnight lending rate by 100bp to 9.50%.
It is likely that the central bank will want to expand and lift its interest rates corridor, particularly at the top-end, to retain more flexibility to tighten monetary conditions during difficult times." SocGen believes that the CBRT's "efforts may be sufficient to slow the rate of [Turkish lira] (EUR/TRY, TRY/JPY, USD/TRY) deterioration, even if insufficient to reverse the bearish market momentum."
Morgan Stanley thinks "it would make sense for the Turkish central bank "to rely on the late liquidity window" given the flexibility it affords them and "is expecting to see 100 basis point hike in the late liquidity window." "If the CBRT is willing, to continue funding the market at this higher rate," the US bank added, "we think the TRY will gradually stop underperforming."
Morgan Stanley believes that "market concerns over monetary policy credibility have been a key reason for TRY weakness (in contrast to say, Mexico) and so progress here should help" though the US firm does throw in the proviso that as their view is "that the rest of the policy rates will be lifted by only 25 basis points, it is possible that the [lira] will weaken immediately following the meeting."
Either way, traders who look at the Turkish lira might feel the need to pay even closer attention than usual to the details of tomorrow's CBRT meeting. The devil may be in the detail.
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