The inflation outlook is deteriorating in Turkey because of past FX pass-through. Therefore, Commerzbank forecasts CBT to raise rates by 150bps to ensure a stable lira during H2 2015. Moreover, the CBT is expected to keep monetary policy on hold, leaving all rates unchanged at today's MPC meeting.
There is no immediate pressure on the lira; and no specific pressure on CBT to raise rates at this crucial juncture when politics is already weighing down on the economy. Going forward, the CB is likely to have a close watch on CAD financing coverage as the world moves into the Fed tightening cycle and DM yields establish an upward trend - on the assumption that USD-driven EM FX will face turbulence.
According to Commerzabnk, there will be a 150bps higher interest rates before year-end, moreover, due to the hike in interest rate, USD-TRY seems to be stabilising at 2.75 through end-2015.
