The central bank; revised inflation forecasts upwards due to factors such as global supply-driven inflationary effects and the lira weakening to record lows after rate cuts. In Governor Mr. Şahap Kavcıoğlu’s presentation, it was predicted that the increase in consumer prices would complete the year with 18.4% compared to the previous forecast of 14.1%. Kavcıoğlu said that the strong dollar caused the emerging market currencies to fall and the tight monetary policy negatively affected the growth of loans and commercial loans.
Some other highlights from the CBRT Inflation Report meeting;
· The year-end inflation forecast for 2022 was raised from 7.8% to 11.8%.
· 2021 year-end food inflation forecast was increased from 15% to 23.4%.
· 2021 average crude oil price forecast was increased from $69.6 to $70.8/barrel.
· Leading indicators show strong economic activity in 3Q21.
· Corporate investment appetite continued to rise in October.
· The decrease in commercial loan rates will support investments.
· Risk premium is expected to be positively affected as the improvement in the current account balance continues until the end of the year.
· 3Q21 commercial loan growth was 6.7%, lower than historical averages, adjusted for currency effects.
· Kavcıoğlu says that supply problems put pressure on inflation.
In an environment where the lira has lost more than 20% of its value since the beginning of the year, recording the lowest performance among other currencies in its class; It is obvious that the successive rate cuts since September can contribute to the process. At this point, it is possible that the policy rate, which the Central Bank has lowered to 16% under current conditions, despite the upwardly revised inflation forecasts, is not in line with the “inflation perspective” approach and feeds the exchange rate-inflation cycle. Apart from this, we will probably continue to feel the effects of the weak lira level economically, as the investment reference and commercial loans phenomenon and current account surplus – competitive exchange rate discourses increase in weight. At this point, we would like to point out that with the guidance of the limited space for rate cuts, the guidance of current account surplus and commercial loans and increase in investment appetite are at different points with each other. We think that the Central Bank’s referrals may mean more cuts this year, but we would like to express our reservation that further cuts will increase the heating effect on the exchange rate-inflation pass-through and increase the need for serious policy change.
As it stands; The hypothesis that low rates will reduce inflation, along with the addition of an approach such as providing price stability and financial stability by giving a current account surplus, shows that the growth perspective can be considered rather than inflation. Despite the upward revision in inflation forecasts, the fact that an interest rate position is no longer adjusted for inflation, except for the period before September, when rates were lowered, forms the basis of our opinion of this change in perspective. As a result, although it is certain that the “interest on inflation” reference will no longer be applied until the end of the year, there is a lira interest rate that is also below the core inflation. We think that this situation, especially in the lower income strata of the society, will increase the incentive to protect against inflation and keep the tendency to keep lira-based savings low, due to the effect of price increases, which are much higher than the written inflation. These factors will not help the purpose of de-dollarization.
After he took office in place of Mr. Naci Ağbal, in March, Mr. Kavcıoğlu did not change interest rates until he made a surprise cut of 100 basis points in September. On the other hand, we know President Mr. Recep Tayyip Erdoğan’s assessments that interest rates should be reduced from a perspective such as growth continuity, investment appetite, financing costs. We think that the increase in borrowing costs, especially after the recent rate cuts by the Central Bank, may not create the desired conditions in terms of financial system risk appetite.
Mr. Kavcıoğlu said that at the point where the current account balance is achieved, the Turkish economy will ensure financial stability. Kavcıoğlu stated that he does not aim to close the current account deficit with the increase in foreign exchange, and that the pressure on the exchange rate will decrease when the current account balance is achieved. In addition, Kavcıoğlu evaluated that the disinflation process that will occur with the establishment of the current account balance will be more permanent. At this point, we are not sure whether there is a perspective formation such as keeping the lira weak in the context of exporting more. We evaluate that the special effects arising from the structural nature of the current account deficit will not have a positive effect on the increase in unit exports for an input and energy importing country like Turkey, but will also have a return, such as higher inflation.
October inflation data will be announced on November 3, our expectation is for periodic 2.1% and annual 19.6% inflation. The next interest rate meeting of the CBRT will take place on November 18.
Kaynak Tera Yatırım
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı
