It was stated that a strong monetary tightening was made in March due to the deviation range in inflation; while volatility in the markets since the end of March, the effect of supply restrictions and the course of inflation expectations still pose an upside risk. While it is assumed that there will be no additional deterioration due to external economic effects or the epidemic in the baseline scenario of monetary policy and inflation; tight monetary policy is expected to shield against new shocks in global financial conditions. The need for tight monetary policy is underlined in terms of these factors and ensuring the disinflation process. In this context; The Central Bank reiterated its commitment to keep the interest rate above the actual inflation until the inflation declines permanently and the 5% target is met in the medium term.
The topics covered in the presentation and our own comments on them;
In growth; While V-type recovery effects were observed in 3Q20, the strong growth path continued with the transfer of aftereffects to the following quarters, and a periodical 1.7% and annual growth of 7% was achieved in 1Q21. While domestic demand formed the basis of strong GDP growth, consumption and machinery & equipment expenditures formed the main lines of demand. Although 2Q21 will be in strong double digits on an annual basis due to the strong base effect, it is expected that there will be a seasonal slowdown in industrial activity and demand due to monetary tightening.
In external financing; Although portfolio inflows were realized positively in 1Q21 with strong Central Bank management and communication; As of the end of March, the trend has changed again towards a net outflow.
On inflation; Although the factor that significantly increases the risks is the cost effect, the entire inflation effect consists of the combination of cost and demand. Although the gap between PPI and CPI has widened up to 18 points; Flash reflections in the PPI opened this gap month to month. Although the PPI reflection of the cost effects from commodities and exchange rates is almost twice that of the CPI, lagged effects on the CPI may cause a convergence and rigidity in inflation. Core inflation trends can be expected to be heavily influenced by the erosion trend in TRY. On the services side, the price equilibrium levels will increase with the cumulative demand effect after the opening.
On the energy side; While the increase effect of oil prices was observed, the scale mobile system limited this pass-through. However, due to tax increases and the end of the scale mobile system, price increases continue, and the effects of this on current inflation may also cause us to see a spillover effect. Because, as we stated in our May Inflation Preview report published today; energy costs are almost an input in many goods and the inflation effect of price increases occurs in a layered manner.
The period from April to September seems to indicate a period in which the rigidity in inflation will continue. Whereas; The Central Bank also predicts that May inflation will be below April inflation (Tera: 17%). While the commitment that the underlying trend of inflation will be taken into account and that interest rates will be high enough in a data-driven way to support disinflation is reiterated, the end of 3Q21 – the beginning of 4Q21, which is pointed out as the downtrend, stands out as the time period in which interest rate cuts can be realized.
Current conditions and the deviation range created by these have the potential to distort the probability of the realization of this baseline scenario. The underlying trend of inflation will be in a position to be affected by the volatility factor in financial markets, the effects of global inflation and the externality of the Fed’s potential tightening.
Kaynak Tera Yatırım
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı