CBT's new Governor launches radical monetary easing, signals continuity of the previous regime

Incoming Governor Murat Cetinkaya kicks off his tenure by loosening policy less than 24 hours after taking the helm. CBT cut the overnight lending rate for the second consecutive month to 10% from 10.5%, while holding steady the benchmark one-week repo rate at 7.5% and the 7.25% overnight borrowing rate.

In a statement that followed, the new governor remarked that headline inflation would continue to fall in the near-term but that core inflation dynamics had not improved much. This assessment suggested the continuity with the previous regime and raised scope for a further 50-100bps reduction of the overnight lending rate over the next couple of months. However, unless core inflation readings strongly improve, the main policy rate is unlikely to be cut.

"Over the course of 2016, we can foresee significant challenges to monetary policy: if EM risk appetite remains buoyant and the lira is stable, then better inflation prints will lead to considerable political pressure on CBT to cut rates aggressively." said Commerzbank in a report.