Global backdrop is turning unsupportive

Dunya Executive - - REPORT -

Kubilay Ozturk, chief economist, Deutsche Bank:

The liquidity management tool itself is only effective in fending off bouts of strain in the lira in the short run, while a sustainable improvement in the inflation outlook would necessitate higher permanent rates ... The Central Bank has now about 70 basis points of additional room in its framework to fend off any foreign-exchange weakness stemming from an elevation in geopolitical, security or political risks ahead of the April 16 referendum. We are still of the view that, despite the ebbs and flows, the global backdrop is turning secularly unsupportive for Turkey. The inflation outlook and the deteriorating trend in inflation expectations also call for tighter and a more permanent stance in monetary policy. We maintain our view for the average funding rate to get closer to 12 percent by mid-2017. (March 17)

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