CBRT's aggressive tightening may be over - Standard Chartered

"We continue to expect the Central Bank of the Republic of Turkey (CBRT) to maintain a hawkish bias, although we think aggressive tightening may be over," argue Standard Chartered analysts.

Key quotes

"We see three reasons that support a decision to keep interest rates unchanged at the 25 October MPC meeting, despite a worse-than-expected September inflation print. First, the relationship with the US has improved markedly following the release of pastor Brunson, US Secretary of State Mike Pompeo’s visit to Ankara and global developments related to the Khashoggi case. This limits the likelihood of renewed escalation in tensions between the US and Turkey in the short term."

"Second, the current account balance – the underlying external vulnerability behind the currency crisis – swung sharply into a USD 2.6bn surplus in August, reducing the 12-month rolling deficit to USD 51bn. Third, while the most recent balance of payments data points to portfolio outflows of USD 1.8bn in August, last week’s USD 2bn bond was 3x oversubscribed and more than 90% of the bonds were sold to investors in the US, Europe and the UK, indicating a recovery in investor sentiment towards Turkey."

"We flag that inflation will remain a hurdle, despite coordinated tightening of monetary and fiscal policy by the CBRT and the government. For instance, the finance minister has set out a new approach to tackle inflation by asking shops and businesses to give consumers discounts to keep prices in check."