Turkey to keep rates on hold on May 6 and beyond – Morgan Stanley

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Reuters

Turkey’s Central Bank headquarters is seen in Ankara, Turkey in this January 24, 2014 file photo. REUTERS/Umit Bektas

Turkey’s central bank will keep its interest rates on hold until the fourth quarter due to price pressures, Morgan Stanley forecast on Thursday, adding any premature cut would result in strong pressures on the lira.

“Given high inflation and the commitment to positive real rates, we see rates on hold on May 6 and beyond,” said Morgan Stanley’s Alina Slyusarchuk in a note to clients.

However, there were some risks to that view following the release of the quarterly inflation report earlier in the day, the first under governor Sahap Kavcioglu, who mentioned that inflation was seen peaking in April. read more

“So, if inflation indeed steps down in May, today’s forward guidance opens the door to potential rate cuts, as the CBT can argue that inflation has started to decelerate. We believe that any such cut would be premature, resulting in stronger pressures in the FX market,” Slyusarchuk added.

Alternatively, the central bank might also decide to use other instruments like reserve requirements, targeted loans or easing prudential requirements to ease monetary conditions, she added.

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