SEB: Expect bigger slice off Turkey rates

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Turkey’s central bank is expected to cut its key interest rate tomorrow, and Swedish bank SEB has gone against consensus saying that it expects the cut to be twice as deep in light of the effect the collapse in the global oil price has had on domestic inflation.

“Tomorrow brings the main event of the week with the much anticipated Turkish rate announcement,” SEB said in a morning note.

“Consensus expects the benchmark rate to be cut by 25bps to 7.50%. However, we believe that the cut will be even larger (50bps) as the slump in oil prices has pushed down inflation and narrowed the country’s current account deficit , both of which have been major concerns to the central bank. This has, in addition to last week’ s less hawkish Fed minutes, fuelled politicians calling for monetary easing, as they stand to benefit from it ahead of the parliamentary elections in June. In addition, the lira has strengthened since mid-Feb which provides room for a larger cut tomorrow.”

Imported energy costs play a crucial part in Turkey’s finances. Figures published in the past year by the International Energy Agency (IEA) suggested that energy use will grow by about 4.5% annually between 2015-2030. Demand growth for electricity will be even higher.

Data from the IEA cited by the US Energy Information Administration suggest the country has been running a net import level of some 600,000 barrels per day since 2001, required to keep Turkey’s economy going.

In contrast, the interest rate announcement expected from Hungary will be less exciting, according to SEB’s view

“Hungary’s rate announcement is also due tomorrow but should be a non-event as all 19 analysts polled by Bloomberg expect the policy rate to be kept on hold at 2.10%. We expect the accompanying statement to be rather dovish as we have seen prices continue to contract and the HUF has strengthened by 5% against the EUR since mid-Jan.”


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