Don’t expect a big hike in Turkish rates: Nomura

Turkey’s central bank is unlikely to raise interest rates substantially at a meeting on Dec. 14 unless there is renewed pressure on the lira, said Inan Demir, an emerging-market economist at Nomura in London.

A more moderate-than-expected increase in core inflation for November, announced on Monday, will bring a moderate response from the central bank, even as consumer price inflation accelerated to 13 percent, the highest level since 2003, Demir said in a note to investors.

Economists have been calling on the central bank to raise rates by as much as 500 basis points after the lira slid the most among major currencies this year and inflation surged. Political tensions with the United States have exacerbated problems for the currency, requiring stern action from the central bank to prevent further depreciation, they say.

The bank in Ankara will probably decide to raise its weighted average cost of funding, currently at 12.25 percent, by 100 basis points, either through an equivalent hike in the late liquidity window (LLW) , or a larger hike in the LLW combined with a resumption of funding at the overnight lending rate of 9.25 percent, Demir said.

Headline inflation is likely to be 11.8-12 percent in December, much higher than the central bank’s most recently revised projection of 9.8 percent, Demir said. Annual inflation will probably remain in double digits until November next year, before closing 2018 at 9.5 percent, he said.