Turkish Lira Soars Over 1000 Pips In Hours On Central Bank Intervention Suspense

Tyler Durden's picture

As we noted earlier, the "surprise" factor of the Turkish Central Bank's (CBT) emergency meeting is seeming to have the desired effect as the Lira has rallied over 1000 pips since the announcement. Officially there has been no intervention and, despite Erdogan's political pressure on the CBT not to raise rates (because of the "interest rates lobby") Barclays (as we noted here) and most other banks are expecting more conventional dramatic interest rate hikes (since everyone knows the FX reserves are running dry):

  • *TURKEY NEEDS TO RAISE O/N RATE 300BPS FOR MKT EFFECT: JPMORGAN

However, JPMorgan adds that it "strongly doubts this will regain investors confidence" and Finansbank warns it has "significant doubts" that the CBT will deliver. And this is what the rest of the market thinks...

 

 

Goldman Sachs (Ahmet Akarli, Kasper Lund-Jensen)

Turkey to begin “clear, decisive” tightening cycle tomorrow, other measures may include draining TRY from system, adding FX liquidity or FX swap lines

Capital controls unlikely at this stage after short-lived attempt to introduce Tobin tax in 2006

It is not exactly clear how the CBRT will play its hand at this juncture. Our best guess is that tomorrow's MPC meeting will mark the beginning of a clear and decisive tightening cycle. Although our current forecast is for the non-PD O/N lending rate to reach 10% (from the current 7.75%) by end-year, it is not clear how far the policy adjustment needs to go to stabilise the TRY and prevent additional under-performance relative to EM peers. More substantive tightening may ultimately be necessary given Turkey's large external imbalances, high and accelerating inflation and the CBRT's weak inflation credentials. Here, consistency and credibility of the CBRT's policy decision will be crucial

Nomura (Olgay Buyukkayali)

Sees “meaningful hike” and a “more simple policy” adopted at tomorrow’s meeting

Marginal funding rate to rise 200bps to 9.75%, with hawkish bias, policy makers to keep this as only funding rate for next few mos.
 

Standard Bank (Timothy Ash)

Needs 300bp rate increase to shore up TRY, with more to come

Finansbank (Inan Demir)

Finansbank has “significant doubts” that the central bank of Turkey will deliver substantial tightening at an extraordinary meeting tomorrow, citing its “less than perfect” track record in responding to routs of the lira, according to chief economist Inan Demir.

In 2006, cenbank declined to raise rates at monthly meeting then held extrardinary meeting to announce 175bp rate increase, which failed to stop lira decline and was followed by another emergency meeting with a 225bp increase: Finansbank

In Oct 2011, cenbank raised upper rate 350bps to 12.5%, but continued to fund market at lower, 1-week repo rate, leaving currency under pressure: Finansbank

JPMorgan (Yarkin Cebeci)

Overnight lending rate may rise to 9.75%

“Strongly doubt” that this would suffice to regain investor confidence

Turkey needs to raise overnight rate 300bps for desired market impact if it keeps so-called interest rate corridor at tomorrow’s extraordinary monetary policy meeting, Yarkin Cebeci, an analyst at JPMorgan Chase & Co. in Istanbul, says in e-mailed report.   * Bank may shift interest rate corridor, or push upper end by     200bps, bringing overnight lending rate to 9.75%

Given “uncertainties that would persist, we strongly doubt that this would suffice to regain investor confidence”:

“Central bank could be forced to deliver further hikes in the coming weeks”

Deutsche Bank (Alan Ruskin)
    * Market looking for “serious” interest rate hike

UBS (George Magnus)
    * Timing suggests something other than rates adjustment, may announce capital controls
    * CBRT has been under pressure not to raise rates; Erdogan remarks that current events part of an international rates conspiracy

Capital Economics (William Jackson)
    * Increase in overnight lending rate to 9% “most likely outcome,” although unclear whether bank will be able to defy government pressure not to raise rates
    * Bank appears to have lost credibility with market

  * Societe Generale (Benoit Anne)
    * Rates need to rise by at least 100bps, ideally 200bps
    * Expects other central banks to also step back into FX market, including Brazil BCB and India RBI

  * BBH (Marc Chandler)
    * Capital controls are a possibility, could take “many different forms
    * 100bp rate increase would be ‘‘nice,’’ market would press for more