A lira-neutral outcome is expected from today’s CBT meeting: the CenBank will likely leave rates on hold for at least another month – this is because the previous inflation data had surprised to the upside, and lira volatility has been elevated over the past month. Until recently, the lira had been weakening and oil prices had been rebounding – these two developments were beginning to trigger an inflation-exchange rate spiral in Turkey. Now, the lira has swung the other way, and it is possible that this will turn the inflation picture around in the May data. Amidst such volatility, CBT is likely to just wait and watch. According to Commerzbank, CBT would raise rates to curb lira weakness if required, whether elections or not – the context for this view has changed somewhat, but the remaining risks would not be dismissed. CBT will not easily forget where things were headed just a month ago, and will not abandon its cautious stance ahead of Fed tightening, especially now that it is too late to help the economy in a major way for an election timeframe (June).
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