Following April, when inflation was supposed to peak, the CBRT kept the interest rates unchanged, as expected, in line with the “interest on inflation” application within the framework of the current inflation outlook. The general consensus of the market was no change in interest rates, and the fact that inflation is currently at a point that does not allow for monetary easing was the main basis for the expectation that the 19% interest rate would continue. The actual inflation of 17.1% does not provide the ideal area at the point of loosening the 19% interest, which provides a certain protection area. Therefore, it is important that the Central Bank continues to remain tight by evaluating the risks regarding current inflation and expectations. Inflation has continued to rise, driven by the weaker lira and rising energy costs, and concerns over key metrics make it uncertain whether inflation will hit a new peak after April.
Important notes on the Central Bank’s current action and policy statement;
· The current monetary policy stance will be maintained until the significant decrease in the forecast path of the April Inflation Report.
· Despite the increase in commodity prices; The strong upward trend in exports, the decline in gold imports and the slowdown in credits are supportive of the current account balance.
· Demand and cost factors, supply constraints in some sectors and high inflation expectations continue to pose risks on pricing behavior and inflation outlook.
· The slowdown effect of monetary tightening on credit and domestic demand began to be observed.
As it is known, the Central Bank revised its year-end inflation forecast to 12.2%, but general estimates show that inflation may occur above these rates. It can be said that the upside risks regarding forecasts are predominant, especially as there is no factor to help inflation other than the base effect and the effect of this will remain periodic. This suggests that there will not be much room for policy easing in implementing lower borrowing costs. The recent increase in inflation has reduced real interest rates below 2%, and our global liquidity positions and negative diverging risk premium may require a stronger real interest position.
The Central Bank removed the “additional tightening” commitment from its policy statement in April MPC. There is no definition of “tight monetary policy” in the current policy statement of the Central Bank. We can say that this is the biggest change after the removal of “additional tightening” in the April MPC. Of course, there is no actual change in the policy implementation, but changes in the communication language may cause uncertainty in the application of monetary policies.
In the Inflation Report, Mr. Kavcıoğlu stated that after the April inflation peaked, there would be a decline in inflation. This shows that in the base scenario assumption, the Central Bank thinks that there will be no need for additional tightening. On the other hand, a permanent and sustainable fall in inflation should be the main criterion in policy normalization. The first rate cut can take place in 3Q21. Depending on the decline in inflation, we expect the cuts to be limited. An early or rapid easing cycle can put depreciation pressure on the lira and increase inflationary risks. A high enough interest rate over the inflation level, should remain in practice in the process of regressing to medium term targets.
Kaynak Tera Yatırım
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı