Turkey: CBRT ready to hike - TDS

Analysts at TDS suggest that the CBRT may be close to a breaking point as USDTRY approaches the 4.00 handle and rate hikes seem unavoidable and imminent.

Key Quotes

“Presidential advisers warned that the Bank may act soon, with independence, and does not have to wait for the 14 December scheduled meeting. We accordingly change our forecast and now expect a 100bps hike of the WACF to 13.25% by December.”

“The current lira sell-off that started in September has already pushed TRY 14% weaker vs USD. We see similarities with previous episodes of lira mini-crises. We think USDTRY is set to invert direction soon; however we remain wary of the possibility of further upside moves. In our model portfolio, we open a limit order for a short USDTRY position at 4.10 with target of 3.75 and stop at 4.25.”

“We also think the slope of the front-end of the curve does not reflect what we expect the CBRT to do in the coming months. We open in our model portfolio a tactical USDTRY Xccy 3m/1yr DV01 neutral flattener position with inception at 123bps, target at 30bps and stop at 155bps. The flattener has negative carry and roll of about 55bps. We look to hold the position for at most 1 month.”