CBT likely to keep policy rates unchanged

Turkey's core inflation momentum also accelerated with annualised core inflation now hovering at 10% y/y. Growth indicators are a mixed bag: industrial production posted strong growth in August, while the downtrend in PMI persisted in September. Confidence indicators, particularly for consumers, remain subdued. Meanwhile, the improvement in the current account deficit resumed in August and it is expected to continue based on preliminary September trade deficit numbers, says Braclays. 

Following the September rates meeting, the CBT re-iterated its cautious tone on the medium-term inflation outlook, and expressed its concern about the delay in improvement in core inflation due to exchange rate movements. Indeed, September inflation came in above expectations as a result of higher food prices and exchange-rate pass-through. The Central Bank of Turkey (CBT) is expected to keep policy rates unchanged, added Barclays. 

These, combined with CBT's simplification roadmap, imply that the CBT will maintain its current framework, considering the delay in the Fed rate hike and volatile nature of capital flows to EM. The recent tragic terror attack in Ankara has added yet more uncertainty to the 1 November elections in Turkey.