The Turkish central bank’s monetary policy committee (MPC) on October 26 announced another policy rate hike of 500bp, taking the benchmark to 35% in line with market expectations (chart).

The gradual monetary tightening would continue, the MPC reiterated.

The next MPC meeting is scheduled for November 23. As things stand, it seems another 500bp is on the way.

In June, following the appointment of Turkey’s post-election new economic team, the MPC launched the tightening cycle, taking the policy rate to 15% from 8.50% with a 650bp hike.

In July, it delivered 250bp. Both the June and July moves undershot market hopes and predictions.

In August, the MPC announced a policy rate hike of 750 bp, far larger than expected by the market. That took the benchmark to 25%. The market expectation was for 250bp.

In September, another 500bp was delivered in line with expectations.

Assessing where the tightening cycle might end, Win Thin, global head of currency strategy at Brothers Harriman & Co, was reported by Bloomberg as saying that the swaps market was now pricing in a peak policy rate of 45%, up from 40% recently. “This is noteworthy,” he said.

In July, the central bank hiked its forecast for end-2023 official inflation to 58% from the 22% given in the May inflation report. Also, the upper boundary was moved up to 62% from 27%.

Moreover, the central bank said it anticipated that official inflation would peak at just below the 70%-level in May 2024.

On September 6, in the new medium-term economic programme (OVP), the Erdogan regime pencilled in an end-2023 inflation expectation of 65%.

On November 2, the central bank will release its next inflation report and updated inflation forecasts.

On October 3, the Turkish Statistical Institute (TUIK, or TurkStat) said that Turkey’s official consumer price index (CPI) inflation stood at 62% y/y in September versus 59% y/y in August and 38% y/y in June.

Looking at the global markets, sentiment remains turbulence-free, despite the latest rise in US Treasury yields (sailing through the 6%s across the curve) that was followed by the rise in the USD Index (DXY) (through the 107-level from the 99s seen in July).

As a result, the USD/TRY has been heading north again. On September 21, the pair once again broke through the horizontal barrier set at the 27.00-level. The latest record high, registered on October 25, is 28.3807.

Turkey’s government has lately been again applying a ‘five/ten kurus (Turkish cents, pronounced as kurush) devaluation per day policy’ in the struggle to stop the slide. As of October 10, the new daily trench was being dug around the 28.15-level, up 3% m/m and 51% y/y.