Turkey changing its monetary policy instruments

In the July Turkish inflation report presentation, CBT Governor Erdem Basci mentioned for the first time that the bank is considering simplifying its monetary policy framework by moving to a single policy rate. He indicated that the CBT will communicate the details of the new simplified operational framework in August.

"The CBT will most likely keep its policy rates unchanged at the August MPC meeting, while explaining how the new simplified framework will be implemented.Alternatively, there is a chance that in August the CBT will already initiate steps towards the simplification", says Barclays. 

In this case, it will not change the O/N lending rate, but instead adjust the 1-week repo rate. A potential (downward) adjustment in the O/N lending rate would weigh on the TRY, particularly against a backdrop of rising domestic political uncertainty and increasing risks to the sovereign ratings outlook.