CBRT bows to Erdogan but will have to backpedal

The Turkish central bank (CBRT) cut interest rates by another 75bp today as policymakers bowed to pressure from President Erdogan for looser policy. More rate cuts are likely in the next few months. But the strong economic recovery will cause inflation to rise further, the current account deficit to deteriorate and the lira to fall. As a result, we think that the CBRT will be forced to hike rates later this year.