October 22nd CBRT rate hike expectations

With the average funding cost over inflation, we switched to a positive real interest position in terms of the overall funding composition. We expect that the traditional repo auctions with a late liquidity window interest rate of around 13.25% and the overnight borrowing limits reduced by half will increase the weight of the LLW on the general funding and the increase in the funding cost will continue. We expect the Central Bank to continue to increase interest rates in order to strengthen the real interest position within the framework of the funding composition and to open up space for additional tightening. Inflation expectations are deteriorating rapidly, and the continued increase in exchange rates can be expected to have an additional effect. In this context, we think that the Central Bank will make an interest rate hike by at least 150 basis points on October 22, or even exceed it.

With the average funding cost over inflation, we switched to a positive real interest position in terms of the overall funding composition. We expect that the traditional repo auctions with a late liquidity window interest rate of around 13.25% and the overnight borrowing limits reduced by half will increase the weight of the LLW on the general funding and the increase in the funding cost will continue. We expect the Central Bank to continue to increase interest rates in order to strengthen the real interest position within the framework of the funding composition and to open up space for additional tightening. Inflation expectations are deteriorating rapidly, and the continued increase in exchange rates can be expected to have an additional effect. In this context, we think that the Central Bank will make an interest rate hike by at least 150 basis points on October 22, or even exceed it.

In tomorrow’s MPC, we expect a new rate hike for 175 bps; so the policy rate will be 12%, interest rate corridor upper band 13,5% and late liquidity %15%.

Policy rate is already 10.25%, but the main funding is above 12% and the funding is important here... We assume that funding rate will be above policy rate, somewhere between interest rate corridor and late liquidity rate (LLW). Again, LLW, which will shift to 15% within the framework of the funding to be directed to the interest corridor and LLW range, can create a reasonable real interest position for TRY and the effect of transition to deposit rates can make TRY more attractive in terms of return, in the short term. Therefore, the CBRT's interest rate hike will fit the interest corridor to the actual funding composition. At this point, it is important not only to position the interest on inflation but also to create an real nterest position that will break the dollarization effect. Therefore, we expect the CBRT to remain in the tightening cycle. The CBRT may be in a position to hike interest rates in subsequent meetings.

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