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Turkish markets firm ahead of rates meeting, eye political appointments

Erdogan has repeatedly called for sharper interest rate cuts, arguing that high borrowing costs are responsible for stubborn inflation

Published: Updated:

Turkish assets firmed on Wednesday with most economists expecting the central bank to keep interest rates on hold later and investors focused on who will be in the new cabinet, set to be announced on Friday.

According to a Reuters poll of 20 banks last week, 13 expect the central bank to leave its main weekly repo rate at 8.25 percent. Six predict a 0.25 percent cut, and one expects a cut of half a percent. None saw a change in the 12 percent overnight lending rate.

But on Wednesday analysts said the market appeared to be pricing in a 0.25 percent cut in the weekly repo rate.

"We have long argued that the inflation outlook as well as Turkey's risks did not justify rate cuts. Unless political pressures turn out to be decisive, the MPC is likely to think the same way this time and keep policy rates unchanged," a note from Finansbank said.

Prime Minister and president-elect Tayyip Erdogan has repeatedly called for sharper interest rate cuts, arguing that high borrowing costs are responsible for stubborn inflation.

Following his election in the country's first popular polls for president, markets have focused on the make-up of the new political team and where it will sit in relation to a more powerful presidency planned by Erdogan, who has assured them there would be no economic policy changes.

In a speech on Wednesday ahead of an AK Party congress, Erdogan said the new cabinet of ministers would be announced on Friday.

"We think market will concentrate on the announcement of new cabinet and economy," said a note from Erkin Isik, strategist at TEB-BNP Paribas said.

"These could lead TRY to reverse its recent underperformance, especially if global risk sentiment remains as supportive," the note said, pointing out that the lira is underperforming emerging markets by 1.8

The lira firmed to 2.1626 against the dollar by 7:15am GMT from 2.1647 late on Tuesday.

Istanbul's main share index was up 0.38 percent at 81,051 points, outperforming a 0.21 percent rise in the broader emerging markets index.

The benchmark 10-year government bond yield fell to 9.16 percent from 9.22 percent on Tuesday.