Testing times

Dünya Executive - - REPORT - Barclays Capital

Increasing concern about trade wars and a more challengin­g global backdrop have pushed some EEMEA central banks to adopt a more cautious stance, erasing our previously penciled-in policy rate cuts for the remainder of the year. Last week, the CBRT kept all policy rates unchanged, contrary to our and market expectatio­ns of a further hike. The decision came against a backdrop of renewed investor skepticism, a fast-deteriorat­ing inflation trajectory, rising inflation expectatio­ns, and escalating external risks. The accompanyi­ng statement suggests the CBRT is choosing to wait and see what will be the disinflati­onary impact of the sharp slowdown and tightening domestic financial conditions it anticipate­s before delivering further rate hikes. The central bank has emphasized the visible loss of growth momentum and singled out food price volatility as the cause of the recent increase in cost pressures, downplayin­g the deteriorat­ion in underlying inflation. Given ongoing investor sKepticism, we think the CBRT will come under pressure again, depending on local household and global EM sentiment, as well as the market’s reaction to perceived political/ geopolitic­al risks given the threat of sanctions by the U.S. (July 27)

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