Citi's Turkish Lira Assessment: Expectation of Interest Rate Cut from CBRT

Luis Costa, Head of Citi Emerging Markets Strategy, stated that they expect the Central Bank of the Republic of Turkey (CBRT) to make an interest rate cut of between 50 and 100 basis points at its meeting this week, noting that a 100-basis-point cut is reasonable following the latest inflation data. Costa noted that they maintain their short-term positive views on the Turkish lira, but that the medium- and long-term sustainability of the exchange rate policy creates a question mark.

Luis Costa, Head of Citi Emerging Markets Strategy, stated in his statement to Bloomberg HT that they expect an interest rate cut of 50 to 100 basis points from the CBRT at this week's meeting. Stating that a 100-basis-point cut is quite reasonable given that the latest inflation data came in quite positively, Costa noted that Turkey and Brazil are among the exceptions to the monetary easing trend among developing countries.

Costa conveyed that they maintain their short-term positive views on the Turkish lira and that they do not have an expectation that the dollar will weaken excessively or experience a strong rise, and that this picture continues to support carry trade transactions. On the other hand, emphasizing that the sustainability of the current exchange rate policy in the medium and long term constitutes an important question mark, Costa expressed that high energy costs and potential current account deficit expansion could create pressure on the TRY.