Tightening may not be over

Kubilay Ozturk, chief economist, Deutsche Bank

Dünya Executive - - BUSINESS -

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.

(April 28)

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