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Another surprise from the Central Bank of Turkey?

The Central Bank of Turkey will be holding its monthly rate-setting Monetary Policy Committee (MPC) meeting tomorrow.

Of the twelve economists polled by business channel CNBC-e, four expect a cut in the floor of the Bank’s interest rate corridor. Of these four, only one expects the ceiling of the corridor to be lowered as well. All the economists believe the Bank will not change its policy rate. In sum, there is quite a bit of consensus that the Bank will not do much.

Here’s the intro. to my latest Hurriyet Daily News (HDN) column. While I find, using daily U.S. inflation, that the real exchange rate has already passed the Central Bank’s threshold level of 120, that doesn’t necessarily mean that they will act. That’s because the Bank has been burned by preemptive easing before. Anyway, you can read the whole thing at the HDN website.

I only have a couple of extra remarks this time: First, note that I calculate the real exchange rate (RER) using only U.S. data, whereas the Central Bank uses 30 or so countries (there’s a hyperlink to their methodological note in the column). That’s why I have to look at the relationship between my index and the Central Bank’s to extrapolate the official index. My friend Ozlem Derici of Ekspres Invest does something slightly different: She calculates RER with EUR and USD, using Euro Area and U.S. inflation forecasts. She told me her own RER is 121-122, which is not far off from mine.

And here’s the official pre-MPC note by Deutsche chief economist Cem Akyurek, to whom I refer to in the column.

Finally, I should tell you that I really feel like an idiot calculating real exchange rate on a daily basis. But that’s the Central Bank’s fault, not mine. After all, they are the ones targeting the real exchange rate…

P.S.: Note that I will edit this post tomorrow right after the MPC  or do a separate post and let you what the Central Bank did, so stay tuned…

41 Responses to “Another surprise from the Central Bank of Turkey?”

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Very confused, Mr Deliveli. Cutting rights, but raising reserve requirements? Are they stuck in a TRYlemma? :-)

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