Key Moments
- Commerzbank’s Tatha Ghose expects the CBRT to keep rates unchanged or only match the policy rate with the current effective funding rate, which he considers inadequate tightening.
- Seasonally-adjusted monthly inflation remained above 2.5% in May, even after easing slightly from April’s Iran-related oil shock impact.
- Ghose sees heavier use of macroprudential tools as insufficient and warns of a materially higher risk of a disorderly Lira depreciation in the coming months.
CBRT Policy Outlook Seen as Too Cautious
Commerzbank strategist Tatha Ghose expects the Central Bank of the Republic of Türkiye (CBRT) to refrain from delivering a meaningful tightening of monetary policy, despite ongoing inflation pressures and strains on foreign exchange reserves from FX interventions.
Ghose anticipates that the central bank will either leave interest rates unchanged or simply raise the policy rate to bring it into line with the effective funding rate. In his view, this would not constitute genuine policy tightening and would fall short of what is needed to stabilize the Turkish Lira.
Market Expectations Around the Rate Decision
According to Ghose, consensus expectations lean toward the CBRT holding its key rate steady. A smaller group of observers still projects a 300 basis point increase in the policy rate, from 37% to 40%.
He argues that even if the bank lifts the policy rate to 40%, this move would mainly represent a technical alignment of the repo rate with the effective funding rate at the top of the corridor, rather than an actual tightening of financial conditions.
Corridor Structure and Limited Impact of a Hike
Ghose notes that such a move would only be “mildly constructive” in terms of policy stance. He does not expect the CBRT to raise the lending rate from 40% to 43% and simultaneously leave the repo facility unused, which he identifies as the only arrangement that would truly tighten conditions.
Given the current inflation backdrop, he frames the central question as whether the CBRT is willing to implement decisive tightening. A partial adjustment of the corridor framework at this stage, he argues, would be inadequate.
Inflation Still Elevated on a Monthly Basis
Commerzbank’s estimates indicate that the seasonally-adjusted month-on-month increase in consumer prices remained above 2.5% in May. Although this represented a slight moderation from April – when prices were affected by “the full impact of the Iran-related oil shock” – Ghose highlights that May’s reading would still be among the strongest monthly outcomes of the year so far.
| Indicator | Detail |
|---|---|
| Estimated seasonally-adjusted m/m inflation (May) | Above 2.5% m/m |
| April inflation driver | Full impact of the Iran-related oil shock |
Macroprudential Tools Viewed as Insufficient
Ghose is skeptical that increased reliance on macroprudential and secondary measures can address what he describes as the core challenges facing the Turkish economy and its currency. He points out that the CBRT’s Q2 inflation report already raised the interim inflation target from 16.0% to 24.0%.
He adds that a further upward revision to this target in Q3 and Q4 cannot be excluded, based on current assessments.
| Inflation Target (Interim) | Value |
|---|---|
| Previous target | 16.0% |
| Q2 revised target | 24.0% |
Rising Risk of Disorderly Lira Depreciation
Ghose cautions that if the perception persists that policy will remain guided by higher tolerated inflation and reliance on non-rate tools, expectations around the CBRT’s commitment to tighter policy could deteriorate further.
He warns that under such a scenario, “the risk of a more disorderly depreciation episode in the months ahead rises materially.”
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