Tightening may not be over
Kubilay Ozturk, chief economist, Deutsche Bank
The next thing to watch for is the distribution of funding from the Central Bank (CB). The wedge between the overnight lending rate and late liquidity window now stands at 300 basis points. Given the CB’s commitment to keep monetary conditions tight against the deterioration in the inflation outlook, a decline in the effective rate, currently at 11.49 percent, seems unlikely anytime soon. Assuming the annual headline consumer price index (CPI) looks set to reach levels close to 12 percent in April, it is more plausible to expect the bank to slightly jack up the average rate around the CPI release, which is due on May 3. We still think the corridor system is a weak form of monetarypolicy response against inflation risks as it only aims at providing foreign-exchange stability in the short term, while bypassing most of the other channels in the transmission mechanism. What is different now is that the CB refrains from recalibration of liquidity management on a daily basis, yet uses a rate normally reserved for financial stability. We are still of the view that despite the ebbs and flows, the global backdrop is turning secularly unsupportive for Turkey.