Turkey: Need to address structural issues – Rabobank

Piotr Matys, emerging markets FX strategist at Rabobank, suggests that Turkey is a country in the CEEMEA sphere that needs to address its structural issues.

Key Quotes

“While the IMF revised higher 2019 GDP growth to 0.25% from -2.5% projected back in April, the Fund warned that recent economic recovery - generated by expansionary fiscal policy and credit impulse from state-own banks - is fragile and growth is likely to remain subdued over the midterm horizon. The monetary policy easing cycle since July is too aggressive, the IMF said and recommended the central bank to keep rates on hold until there is a sustainable slowdown in inflation and inflation expectations.”

“We have been arguing that the pace of easing is too fast and could result in the CBRT overshooting on the downside. It is, therefore, encouraging to hear Governor Uysal saying that the CBRT has used “most of monetary policy space in July and September.” His remarks imply that following two massive rate cuts of 425bps and 325bps, the next move in October will be far more measured.”

“When assessing monetary policy one has to take into consideration President Erdogan’s view on interest rates. Earlier this month the influential Turkish president said that Turkey will lower rates to single digits and inflation will fall in tandem. With the policy rate at 16.5%, there is still a long way to go before Governor Uysal meets President Erdogan’s expectations.”