Traders Rush to Price in Rate Cuts After Turkey’s Syria Sweep

(Bloomberg) -- Blink and you might have missed it. That’s how fast the political risk premium baked into Turkish assets is dissipating, and it’s opened the way again for further policy easing at next week’s rate meeting.

The violent repricing -- the one-year currency swap tumbled more than 200 basis points on Thursday alone to 13.8% after creeping over 17% this week. So now the rate is almost 300bps below the central bank’s benchmark. The drop comes after President Recep Tayyip Erdogan struck a deal with the U.S that has greatly reduced the risk of punitive American sanctions.

And it’s not hard to see why the market is shifting. As the lira regains its composure after this month’s rout, the inflation outlook stands to improve further (the 12-month forward estimate for consumer price growth in the central bank survey published earlier retreated more than 100bps from to 11.18%).

The monetary authority meets on Oct. 24. After pricing out any reduction in the benchmark rate earlier this week, the market is once again ready to digest more cuts.

©2019 Bloomberg L.P.

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