Turkey: The CBRT reduced the ceiling of the interest rate corridor by 150bps

The CBRT cut the ceiling of the interest rate corridor by 150bps to 9.5%. Market expectation was a 100bp cut. The policy rate and the lower-end of the interest rate corridor were left unchanged at 5.75% and 5.00% respectively. Today’s rate cut is likely to lead to further decline in the loan and deposit rates of the banks. The CBRT also raised reserve option coefficient by 0.2 pp at all tranches. The CBRT stated that if deemed necessary, the interest rate corridor could be narrowed by a “measured” cut in the ceiling of the corridor. Hence, the CBRT seems cautious regarding further similar steps. The decision to raise ROC is TRY unfriendly, as it would lead to further FX demand by banks. However, since the CBRT maintained the floor rate at 5% and kept its policy rate at 5.75%, this should provide some counter balance to the rise in ROC. Hence, on balance we believe the decision would be neutral for TRY denominated assets.