Rates Have To Rise In 2010

The spike in Turkish headline inflation in February is not expected to fundamentally alter the country's monetary policy outlook, with the majority of the rise accounted for by statistical base effects. That said, we maintain that fundamental inflationary pressures are likely to build further through the rest of the year. With the CBRT facing negative real interest rates amid improving demand conditions and rising inflation expectations, meeting their 6.50% end-year inflation target is looking to be increasingly difficult and risks of aggressive rate hikes are rising. We caution therefore, that fixed income yields and IRS rates will be especially vulnerable going forward.

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