POLL-Turkish cenbank to forge on with cut of up to 100 points


By Ali Kucukgocmen and Ezgi Erkoyun

ISTANBUL, Oct 18 (Reuters) - Turkey's central bank is expected to forge ahead this week with another rate cut of either 50 or 100 basis points despite damage to the lira, a Reuters poll showed on Monday, after President Tayyip Erdogan sacked hawkish policymakers.

The central bank unexpectedly lowered its policy rate to 18% from 19% last month, delivering the move long sought by Erdogan, whose frequent calls for stimulus have eroded monetary policy credibility in recent years.

Ten of 21 economists polled expected the bank to cut its key interest rate by 50 points to 17.50% on Thursday, while another 10 expected a 100-point cut to 17%.

One predicted no change, while at least three regular contributors to Reuters polls declined to respond this month citing unusual difficulties guessing the central bank's moves.

Erdogan has ousted three central bank governors in 2-1/2 years and he surprised markets again last week by abruptly firing three members of its monetary policy committee (MPC), including two seen to have opposed the recent rate cut.

The cut was seen as premature given it left real yields in sharply negative territory, as inflation rose to 19.58% in September. The core "C" measure - which the central bank has been stressing of late - rose to near 17%.

The lira TRYTOM=D3 is down 20% this year - including 10% since the beginning of September, when the bank began giving dovish signals. It touched a record low 9.2950 versus the dollar on Monday.

The currency depreciation stokes inflation via Turkey's heavy import bill priced in hard currencies.

Commerzbank said the size of the cut will not matter since the message will be clear in both cases.

"The (central bank) is no longer interested in the effects of its interest rate policy on exchange rates, inflation and in the end the stability of the Turkish economy," it said.

"In the end the decisions on ... monetary policy are no longer taken by the central bank itself but are taken in the President's Palace."


Central Bank Governor Sahap Kavcioglu dismissed claims that the ousted MPC members had opposed last month's rate cut, and said the bank would make the right policy decision based on data.

He also said the rate cut did not on its own cause the lira depreciation, citing recent dollar strength.

Economists expect the bank to continue cutting rates, although there is little consensus on how far it will go before the combination of the exchange rate and inflation force a pause.

"Despite the irrationality of further rate cuts at this juncture, there is no longer any point to ascribing traditional economic arguments in considering the ... likely course of action," said Phoenix Kalen, head of emerging markets research at Societe Generale.

The median estimate of 13 economists who participated in the Reuters poll for the policy rate at year-end stood at 16.5%, with forecasts ranging between 17% and 16%.

The central bank's year-end inflation forecast of 14.1% remains well below the market expectations.

Responding to the poll, Cristian Maggio, head of emerging markets strategy at TD Securities, said the bank was easing when it should be hiking.

"Nominal interest below the current and likely future inflation rate will continue to exert negative pressure on both the lira and inflation," he said.

(Editing by Jonathan Spicer)

((ali.kucukgocmen@thomsonreuters.com , @alikucukgocmen; +905319306206; Reuters Messaging: Reuters Messaging: ali.kucukgocmen.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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