International Trading: We do not expect a major sell−off in the Turkish markets

We do not expect a major sell−off in the Turkish markets

Thursday, September 16, 2010 , Posted by Usman Ali Minhas at 11:32 PM

Completely as expected the Turkish central bank (TCMB) yesterday kept its key policy rate unchanged at 7%. The continued strong recovery in the economy and the historically low level of interest rates in Turkey mean that the TCMB, sooner or later, will have to tighten monetary policy. However, we do not expect any tightening of monetary policy in Turkey before Q1 11.

The recovery in the Polish economy continues and there has been no real sign of a slowdown in the economy. We expect the industrial production numbers for August to further confirm our expectations – we expect IP to be up 15% y/y in August.

Even though we have for some time argued that the TCMB would be in no hurry to hike, it is nevertheless of concern for interest rates that a rally in the Turkish fixed income markets could get a little too strong. After all the output gap is now positive and the economy is continuing to grow strongly so a “normalisation” of interest rates will have to start sooner or later. We do not expect a major sell-off in the Turkish markets, but one should be a little more cautious as the risk of some profit-taking appears to be growing.