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Turkey expected to hike by 50 basis point
Turkey’s Central Bank is expected to raise the benchmark repo rate by 50 basis points and to tighten the overnight lending / borrowing corridor to 7.75%/10.75% from 7.25%/10.75. While the Fed tightening is the main trigger of the CBT’s policy adjustment, the move will certainly be the first in a series of a broader modification at the heart of Turkey’s monetary policy. Turkey’s Central Bank is preparing to step away from its complex, multi-rate strategy and to adopt a more transparent, singular policy to improve efficiency in communication.

Today’s modification is not a significant rate tightening per se; it is the first step toward a symmetrical and a tighter overnight rate band around the benchmark repo rate. The central bank will certainly keep the average funding cost steady and avoid the market from taking a hit. The bank is expected to gradually tighten the monetary policy in order to prevent an overheating in inflation and adjust the risk premium to rising geopolitical risks. It is noteworthy mentioning that the CBT will move at moderate pace given that the political pressure is there to stay; President Erdogan remains favourable for lowering rates to support economic growth, somewhat contradictory to the fundamental picture.