Turkish Lira: Policy pause and MSCI risk weigh – Societe Generale

Societe Generale strategists report expectations that Central Bank of the Republic of Türkiye (CBRT) will hold rates at 37% on Thursday versus consensus for a 100bp cut to 36%. They cite softer growth and liquidity strains versus sticky inflation expectations as reasons for caution. They flag Governor comments on allowing Lira weakness, limited inflation pass-through, and new MSCI-related equity market risks alongside a sharp Borsa Istanbul 100 decline.

Rate stance, lira strategy and MSCI threat

"The CBRT is anticipated to hold rates at 37% on Thursday. The consensus is for a 100bp cut to 36%."

"Softer growth and recent liquidity strains support an eventual return to easing, but only gradual disinflation and still-sticky inflation expectations argue for caution."

"CBRT Governor reportedly told investors at meetings in Bangkok that the slide in the lira to new lows is designed to prevent sharper weakness in the longer term. The pass through to inflation would supposedly be limited because of weaker growth in the economy. "

"New market risk also emerged after MSCI intensified its scrutiny of the equity market following the domestic fund crisis, freezing some index changes. It warned that without clear progress by June 2027, it could consider reclassifying Turkey from Emerging Market to Frontier or Standalone status."

"The Borsa Istanbul 100 has fallen to its lowest level since January, down 23% from its record high in May."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)