Investors Say It's About Time Turkey Untangled Policy Rates

(Bloomberg) -- Less than a week after raising borrowing costs at an emergency meeting, Turkey’s central bank announced long-awaited changes to simplify its complicated policy-rates system.

Read More: Why Turkey Simplified Its Tangled Interest Rates: QuickTake Q&A

The tweaks sent the lira soaring the most in the world, it spurred the biggest decline in the nation’s 10-year bond yield since 2013 and fueled a stock rally.

Here’s what analysts and investors had to say about the changes:

Ogeday Topcular, a fund manager at RAM Capital in Geneva:

  • “Simplifying the rate regime in Turkey was needed for a long time and the central bank’s taking this decision now shows that they are committed to do whatever necessary to increase confidence among investors”
  • “These are good signs; however I believe the investors want to see more, especially on the eve of very important elections”

Per Hammarlund, the chief emerging-market strategist at SEB AB in Stockholm:

  • “The simplified framework was a long time coming, but is a significant step in the right direction. The selloff in the lira since early March has forced politicians to reduce pressure on the CBRT to pursue an expansionary monetary policy”
  • The selloff has tipped the balance in favor of increased Turkish central bank independence. “A reversal of this stance and increasing political influence over monetary policy is unlikely in the coming months”
  • “The real test of CBRT independence will come when the lira has strengthened; but inflation and inflation expectations remain high. Until then we can only hope that today’s change will be a lasting one”

Burak Kanli, the chief economist at QNB Finans Invest in Istanbul:

  • “Even the mention or the signal of this was a relief. While it’s not going to change the de-facto policy rate, it will make the policy framework simpler”
  • “Normalization in monetary policy has long been what investors have been seeking, and this decision has shown some light at the end of the tunnel. All in all, with these changes, it seems like we may be out of the dead-end street on the monetary policy front”
  • While the rally in Turkish assets will likely continue, investors would still like to see concrete steps towards normalization in fiscal policies and politics

Abdul Kadir Hussain, the head of fixed income at Dubai-based firm Arqaam Capital:

  • “The simplification should help lira volatility, but I wouldn’t expect a sharp reversal in the weakening trend. Some of the challenges still remain”
  • A turnaround in Turkey’s current-account deficit is unlikely given slowing growth in Europe and oil prices that are near recent highs
  • “From the credit side, it will probably remain range bound until the elections. CDS spreads have narrowed, but still remain much wider than South African and Russian peers”

Sertan Kargin, among other analysts at Global Securities:

  • “The Monetary Policy Committee’s communiqué should be seen as ‘market friendly outcome’, reduce ‘market noise’ and thereby contain ‘currency volatility’, as the central bank has shifted towards using conventional policy ammunition which is likely to provide a uniform pattern of policy guidance for all of us and closes the door for potential mispricing”
  • “The recent conventional dose of policy mix should convince markets about the CBRT’s policy independence and its commitment to do more if deemed necessary to re-anchor inflation and inflation expectations”

Saed Abukarsh, co-founder of Dubai-based hedge fund Ark Capital:

  • “This may stem the short-term pressure but the lira will still be susceptible to risk-off pressure. The real test will be after elections. I suspect the lira will rally after elections, but I don’t expect that central bank actions will alleviate medium-term pressure”

©2018 Bloomberg L.P.

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