Macro and politics
Tacirler Investment
* The Monetary Policy Committee (MPC) decided to cut the policy rate by 250bps to 47.5% from 50%, broadly in line with market consensus. Recall that our house estimate was for a 150bps rate cut; however, we emphasized recently that, following the announcement of fewer meetings for the coming year, we did not entirely rule out the possibility of the MPC starting to cut rates by around 200bps–250bps. The Committee also decided to adjust the monetary policy operational framework by setting the Central Bank’s overnight borrowing and lending rates 150 basis points below and above the one-week repo auction rate, respectively. With this adjustment, the Committee has narrowed the interest rate corridor from 300bps to 150bps, signaling a calibrated and prudent policy stance to the markets. Hence, the CBRT adopted a cautious tone and communicated an overall "prudent optimism," emphasizing that it will not follow a pre-determined path of rate cuts and that decisions will be made on a meeting-by-meeting basis. Accordingly, following yesterday’s 250bps rate cut, we project a gradual easing cycle throughout 2025, with the policy rate ending the year at 30%. In formulating our 2025 policy rate forecast, we assume that both ex-post and ex-ante real policy rates, as well as their average, will consistently remain above a certain threshold.
* In the week of December 13 – 20, limited foreign activity through the standard portfolio channels prevailed. Accordingly, the equity market experienced a foreign outflow of USD169.2mn, while there was a net foreign inflow to the bond market at an amount of USD336.8mn (excluding the repo transactions). Moreover, the foreigners’ share in total bond stock rose to 7.76% from 7.6%. Besides, the residents’ FX deposits dropped slightly by USD325mn (gold accounts excluded, EUR/USD parity adjusted), while the residents’ total FX deposits (including gold, price adjusted) slid moderately by USD180mn in the week of December 13 – 20. The CBRT’s gross FX reserves fell by USD7.2bn to USD156.3bn, while the net international reserves decreased by USD3.7bn to USD61.8bn during the same period. Net reserves excluding swaps also declined by USD3.5bn to USD46.4bn.
* The CBRT released the December Sectoral Inflation Expectations survey results and the downward tendency in 12-month ahead annual inflation expectations sustained, albeit at a modest pace compared to previous month. According to the December survey results, 12-month-ahead annual inflation expectations decreased further by 0.1 points to 27.1% for market participants, by 0.2 points to 47.6% for the real sector and by 1 point to 63.1% for households. Please recall that in the November survey results, 12-month ahead annual inflation expectations showed a decline of 0.2 points for market participants, 1.7 points for the real sector, and 3.1 points for households. The recent slowdown in the pace of inflation decline has been reflected in expectations; however, the overall downward trend in expectations remains intact.