As expected, the Central Bank revised its inflation forecasts upwards and continued its guidance that it will maintain its tight monetary policy “with great determination and patience” regarding the current inflation outlook. The 2021 inflation forecast was revised from 9.4% to 12.2%, with the most weighing in particular from import costs.
Some highlights from the CBRT Inflation Report meeting;
· Consumer inflation is expected to reach a peak in April.
· The Central Bank will use all the tools at its disposal to achieve price stability.
· The policy rate will remain above the “actual and expected inflation rate” in order to maintain a strong and inflation-reducing effect.
· 2022 inflation expectation was revised up to 7.5% from the previous 7%.
· The 2021 food inflation expectation was revised up to 13% from the previous 11.5%.
· Brent oil 2021 average price assumption was increased to 64.4 USD.
Although the Central Bank is getting closer to market expectations in the framework of the current inflation forecast, it still remains under consensus. The level of consensus that the market generally agrees with indicates levels of 13-14% for inflation. Of course, the possibility that current factors that feed inflation, especially commodity prices and a new pressure in the currency leg, cannot be eliminated. On the other hand, the cumulative cost effect from the PPI may witness a faster transition effect within the period including the closing. In this context, it is possible that high inflation pressure will be felt after April. Considering that the lira has depreciated by more than 10% against the USD since the last 10 days of March, the effect of import costs and its spillover effect should not be ignored. We think that the risks to the Central Bank’s current forecast of 12.2% are also upward.
Important point; the CBRT interest rate will continue to be set above actual and expected inflation based on this policy. This also fits with the definition of a real interest position to support disinflation. In a context, it is directed that monetary policy will be tight enough when inflation declines with the base effect, and Turkey will continue to be in a positive real return position in this process. The real interest position is very important and will increase in importance, especially in the positioning within the emerging country group. In terms of capital movements and global liquidity position, the real interest rate will have to be high enough if the Fed will deal with the monetary tightening further with the good US economy. On the other hand, we see that many economists think that despite the inflation peak assumption that can converge to 18-19%, with Mr. Kavcıoğlu predicting April inflation as a peak, there will be no need to raise interest rates.
We expect April inflation to be announced on Monday, May 3, to rise by 1.3% month-on-month to 16.7% year-on-year. On the other hand, we do not expect any interest rate changes from the Central Bank’s MPC meeting dated May 6. Lack of additional tightening guidance and the CBRT’s assuming April inflation as a peak, eliminating the possibility of a rate hike; The fact that inflation is not in a downward phase also postpones the possibility of a reduction.
Kaynak Tera Yatırım
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı
