Trading week, lasting four days due to the observation of National Holiday, has kicked off rather calm. While political parties are expected to release their final candidate lists, there are discussions going on today on the CBRT decision as well.
Yesterday, on a live broadcast, I emphasized that the Central Bank stands in a position where it can choose only 2 out of 4 options. It can’t go for a drastic rate hike. People are not just ready for that. Although making a simplification by reducing “Overnight Rate” to the current cost of funding would be the most reasonable thing to do, it just can’t be done as it is quite complicated.
So, CBRT will either avoid altering rates or announce a hike by 50 bps or above. Let’s take a look at the odds: There’s a 70 % chance that CBRT keeps the rates intact, 30 % chance that it goes for a hike. That’s my personal forecast for the current situation. It is you that should make your own prediction.
“Hiking rates would bring any advantage at all?”
If CBRT decides to raise interest rates, will exchange rates get affected by it? I, personally, do not think no matter what CBRT decides to do; it will not bring any permanent impact on exchange rates. Capital inflow is needed to maintain exchange rate stability. Interest rate may be the last instrument that is expected to enable such inflow. The right thing to do now is to provide safe investment environment and stability.
It looks like we will have to wait for the elections are over for things can get a little calmer. In this context, I think moving elections to an earlier date was the right decision, which also helped “We’ll figure that out after the elections” kind of approaches expire earlier.
As of this morning, there is still no clarity on opposition’s candidate. There are rumours, however, that the Opposition may place a conservative-friendly candidate into the competition. Such rumours are usually spread to be able to play a more effective part in the upcoming process. I guess we will just have to wait and see.