BBVA's Assessment on CBT's Exchange Rate Policy and Interest Rate Cut Expectations
International financial institution BBVA stated that the Central Bank may allow a faster depreciation in the Turkish Lira and that the possibility of an interest rate cut in October has increased.
In its latest assessment of the Turkish economy, BBVA predicted that the Central Bank of the Republic of Turkey may allow a faster nominal depreciation of the Turkish Lira. The bank also reported that, in line with September inflation and developments in the fund sector, expectations for an interest rate cut at the Monetary Policy Committee meeting in October have strengthened.
Exchange Rate Policy and Depreciation Forecast
BBVA stated that the Central Bank of the Republic of Turkey could permit a faster nominal depreciation of the Turkish Lira. According to the bank, this approach has the potential to reduce the risk of a more severe exchange rate correction in the future.
Impacts on Carry Trade Strategy
According to the bank's assessments, it was stated that a potential adjustment in exchange rate policy would not alter the fundamental structure of the carry trade strategy.
Inflation Justification for Interest Rate Cut
BBVA noted that September inflation falling below 30 percent is among the factors strengthening the rationale for an interest rate cut.
Developments and Expectations in the Fund Sector
It was pointed out that the turmoil in the fund sector has weakened confidence and tightened liquidity conditions for some companies. Following these developments, expectations for an interest rate cut by the CBRT at the Monetary Policy Committee meeting on October 22 have gained strength.