Jan 16 2019

Turkish lira likely free of premature rate cut risk – Nomura

The Turkish lira may be free from the risk of a premature rate cut by the central bank ahead of March 31 local elections, according to Inan Demir, an economist for Japanese bank Nomura.

The central bank has retained its tightening monetary policy bias in a statement accompanying a decision on Wednesday to keep its benchmark rate on hold at 24 percent. It’s next meeting on rates is on March 6.

“It would not be appropriate for the central bank to jump directly from its tightening bias to monetary easing,” Demir said in e-mailed comments from London. “By the same token, the fact that the tightening bias is intact in today’s statement reduces the likelihood that the central bank will cut rates at its next meeting.

“The Turkish lira seems to be free of the risk of a premature cut ahead of the local elections.”

Some investors in Turkey had sold the lira ahead of Wednesday’s meeting, citing the risk of a rate cut. Inflation in Turkey has slowed to 20.3 percent from a 15-year high of 25.2 percent in October, making a reduction more likely. The bank came under political pressure last year to keep interest rates low, causing a loss of investor confidence that has not fully returned.

Demir is the most accurate forecaster for Turkish rates, according to Bloomberg.

The lira climbed 1.4 percent to 5.36 per dollar at 4:37 p.m. in Istanbul, paring this year’s losses to 1.3 percent. It slid 28 percent in 2018 as investors fretted over an overheating economy and a political crisis with the United States. The economy contracted a quarterly 1.1 percent in the three months to September.