Headline inflation edged down to 10.3% y/y in February (from 10.4% in January) and the TRY has remained fairly stable against the USD since the start of the year (though it is down -3% against the EUR). Hence the Central Bank of Turkey (CBT) kept its set of policy interest rates unchanged today, including the official policy one-week repo rate (8%) and the late liquidity window lending rate (12.75%). Since November 2017, the CBT has funded the market entirely through the latter, making it the effective policy rate. We expect the CBT to continue this unorthodox, relatively tight monetary policy stance in the next months. Should inflation fall markedly at some point, a subsequent cautious loosening is likely. Meanwhile, nominal exports of goods rose by +11% y/y in January but were outpaced by soaring imports at +38% y/y. As a result, the rolling 12-month trade deficit widened to USD82bn in January 2018 from –USD57bn a year earlier. This poses upside risks to our current account deficit forecast of -4% of GDP in 2018, after an estimated -5.5% in 2017.
