Turkey: CBRT's inflation report to provide fresh clues - Rabobank

"Turkey’s central bank was forced to raise interest rates significantly last year to support the lira. Given that the Turkish currency has been relatively stable over the past few months and inflation
has decelerated faster than initially anticipated, it is only a matter of time when the emergency hike will be gradually reversed," Rabobank's EM FX strategist Piotr Matys notes.

Key quotes

"The CBRT’s quarterly inflation report due to be published on January 30 will provide fresh clues about the timing of the first rate cut. Back in October the central bank expected inflation to be at 15.2% by the end of 2019 and ease further to 9.3% by the end of 2020."

"It is reasonable to assume that the CBRT will revise its forecast lower due to favourable developments in inflation driven by a strong lira accompanied by the sharp fall in oil prices. Weak domestic demand and investment also contributed to the disinflationary trend."

"While there is room for a measured downside revision, it is crucial not to overdo it due to persistent gap between the CBRT’s forecast and market expectations. According to the CBRT’s January survey of expectations, market participants anticipate the inflation rate will slow down to 16.5% by the end of 2019. This would be above the current CBRT’s mid-point of 15.2%."