Turkish bonds strengthened after weaker-than-expected April industrial output data gave credence to the central bank's view that demand is cooling, which could mean rate hikes come later rather than sooner. The benchmark 10-year yield fell 5 bps to 8.90%. Turkey's industrial output rose 8.3% y/y and well below our expected forecast rise of 9.0% On a seasonal and calendar adjusted basis, output fell 0.6% m/m compared with a monthly fall of 0.3%.
We expect to see further slowdown in the coming months due to less favourable base and the central bank's efforts, and we think April output data will strengthen the central bank's hands further and improve its credibility, but we are still talking about a double-digit 3-month rolling year-on-year industrial production growth. The central bank has held rates at a record low of 6.25% since January, preferring to "tighten" by raising banks' required reserve ratios, as it struggles to rein in loan growth to 25%.
The bank has said it sees its measures working and loan growth will meet its target by year end, but markets have been more sceptical. Most investors expect the bank will have to raise interest rates in 2H11 due to Turkey's strong growth, although views are mixed over whether rate hikes will come in the third or fourth quarter.TRL/USD last traded at 1.5850 , from a previous close of 1.5817. Turkish stocks have fallen 4.3% so far this year, lagging gains in other emerging markets on fears of looming inflation, economic overheating and doubts about the central bank's unorthodox monetary policy.
EUR: As those events unfolded, EUR/USD progresses toward $1.4700, and even EUR/CHF, which has tended to better reflect the tone underlying EUR has (choppily) been making modest gains in the past couple of days. And we look forward to the ECB meeting with an expectation that Trichet will note the need for “strong vigilance,” nudge nudge, wink wink.
We expect to see further slowdown in the coming months due to less favourable base and the central bank's efforts, and we think April output data will strengthen the central bank's hands further and improve its credibility, but we are still talking about a double-digit 3-month rolling year-on-year industrial production growth. The central bank has held rates at a record low of 6.25% since January, preferring to "tighten" by raising banks' required reserve ratios, as it struggles to rein in loan growth to 25%.
The bank has said it sees its measures working and loan growth will meet its target by year end, but markets have been more sceptical. Most investors expect the bank will have to raise interest rates in 2H11 due to Turkey's strong growth, although views are mixed over whether rate hikes will come in the third or fourth quarter.TRL/USD last traded at 1.5850 , from a previous close of 1.5817. Turkish stocks have fallen 4.3% so far this year, lagging gains in other emerging markets on fears of looming inflation, economic overheating and doubts about the central bank's unorthodox monetary policy.
EUR: As those events unfolded, EUR/USD progresses toward $1.4700, and even EUR/CHF, which has tended to better reflect the tone underlying EUR has (choppily) been making modest gains in the past couple of days. And we look forward to the ECB meeting with an expectation that Trichet will note the need for “strong vigilance,” nudge nudge, wink wink.
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