The Turkish central bank’s monetary policy committee (MPC) on November 23 announced another policy rate hike of 500bp, taking the benchmark to 40% (chart). The market had expected an increase of 250bp.

The pace of monetary tightening will now slow and the tightening cycle will be completed in a short period of time, according to an accompanying statement from the MPC. The key rate stood at 8.5% in June, when the central bank commenced its series of rate increases.

The next MPC meeting is scheduled for December 21. As things stand, it seems the rate-setters will bring in a 250bp cut at that meeting.

In addition to policy rate decisions, the MPC will continue to make quantitative tightening decisions (macroprudential measures and non-capital controls) to support the monetary policy stance, the statement added.

The MPC, it can be observed, repeatedly contradicts itself by simultaneously marketing its so-called policy “normalisation” while at the same time promising more non-rate measures.

It makes no sense when it comes to business, but following the local elections to be held in March, with the policy rate expected to be at its peak, the finance industry will be invited in for the rate-cutting shindig.

Following the release of the rate decision, the USD/TRY rate tested the 28.60-level before springing back to the 28.75-line. Observers wondered if it was an organic motion or another attempt by Erdogan regime players to fish for some fools (“keriz” in Turkish).

On September 21, the pair once again broke through the horizontal barrier set at the 27.00-level. The latest record high, registered on November 23, is 28.92.

The government applied another phase of its ‘five/10 kurus (Turkish cents, pronounced as kurush) devaluation per day policy’ in the struggle to stop the slide.

Prior to the rate hike decision, the latest daily trench was being dug around the 28.85-level.

At 28.75, the pair is up 2% m/m and 55% y/y. It is interesting to note that the government has been keeping the monthly and yearly depreciation rates at around 3% and 55%, respectively. 

However, the policy rate still stands at 40%. There is no need to seek lira returns higher than the currency depreciation. Following the elections in March, double returns from the rising prices of lira papers and lira appreciation will be written.

After the national elections held in May, another wave of currency depreciation coupled with widespread tax hikes once more dynamited pricing behaviour in the country.

In June, following the appointment of Turkey’s post-election new economic team, the MPC launched the tightening process that is still ongoing.

On November 3, the Turkish Statistical Institute (TUIK, or TurkStat) said that Turkey’s official consumer price index (CPI) inflation stood at 61% y/y in October versus 62% y/y in September and 38% y/y in June.

On November 2, the central bank hiked its forecast for end-2023 official inflation to 65% from the 58% given in the July inflation report. Also, the upper boundary was moved up from 62% to 68%.

Moreover, the central bank currently anticipates that official inflation may peak in the 75-80% range in May 2024, up from the 70% projection given in July.

On February 8, the central bank will release its next inflation report and updated inflation forecasts.

Looking at the global markets, a positivity surrounds sentiment. Turkey’s five-year credit default swaps (CDS) remain below the 400-level, while the yield on the Turkish government’s 10-year eurobonds remains below the 9%-level.