Turkey | CBRT raises rates and sends the right signal

Summary

The Central Bank of Turkey raised the policy rate by 200bps to 10.25%. The CBRT justifies decision with the inflationary pressures coming from a strong path of the economic recovery (in line with our view) and supply-side effects due to the recent exchange rate depreciation.

Key points

• Key points:
• The combination of the rapid economic recovery and recent depreciation of the exchange rate made inflationary pressures inconsistent with the CBRT’s year-end inflation projection at 8.9%.
• The CBRT acknowledges a fast recovery pattern in economic activity and the role of the recent credit boost.
• The decision is the correct one, not only by size (our Taylor rule is in line with the decision, suggesting near 10.5%) but also in terms of the “signaling” effect.
• The message is clear but should be reinforced by actions if needed. Time to rebalance.

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