Although we do not expect an interest rate change from the CBRT’s meeting to be held tomorrow, due to the current financial market stress and the continuing high pressure of inflation; We carefully follow the evolution of monetary policy towards easing. Putting core inflation at the forefront of the focus of monetary policy also increases the possibility of potential interest rate cuts. In terms of headline inflation, there is no such easing area. Although the annual rate of increase in the core prices group was 16.8% in August, the annual increase in headline inflation, which is the main motivation for hedging inflation and expresses purchasing power, is 19.3%. Factors such as cost elements that pose risks to inflation and the exchange rate that may feed them, industrial metal prices, and financial market efficiency remain active. Factors such as energy demand and agricultural production that will occur within the scope of seasonal conditions also pose risks in the context of basic metrics. In this respect, even if there is a downward movement in inflation in the following months due to the base effect, secondary effects may keep the pricing mechanism effect up.
While the factors that keep headline inflation high are mostly from food, the effect of high food inflation can also be felt in winter months as a supply effect. Post-opening effects on core goods and services, reflecting high demand and closing-period losses, pushed up the effects of periodic inflation. Macro prudential measures and some other regulations aim to limit the domestic demand factor. On the other hand, the Central Bank’s shift of focus to the core inflation side, when the practice of “interest on inflation” could not continue after 5 months of not making any interest rate changes in the general monetary policy trend, leads us to the scenario that the first policy intervention would be interest rate cuts. We think that the Central Bank should evaluate indicators such as headline inflation or close to the headline (such as indicator B rather than indicator C) within the scope of the precautionary principle regarding inflation.
If the Central Bank is to take into account the general trend of inflation and accelerate de-dollarization within the framework of economic realities, it will need a tighter policy. Against this; Despite the stricter policy requirement, we see that the interest rate reduction request is more prominent. A policy trend centered on growth (the GDP showed a record increase in 2Q21) may further accelerate inflation in a growing economy with high inflation and create a set of macroeconomic variables that require tightening again in the future. We do not see the possibility of a rate hike by the Central Bank as it shifts the focus from the headline to core inflation and increased the FX reserve requirement last week. Against this; We think that price stability risks are still high. In particular, exchange rate volatility may be affected by a negative yield position. In addition to global supply shortages, seasonal conditions and the underlying inflation trend, the exchange rate effect increases cost accumulation.
As it will be remembered; President Mr. Recep Tayyip Erdogan evaluated that there may be an easing after the August-September period. We think that the Central Bank should consider policy easing, at a point that takes into account inflation. We do not expect any changes in this context at the September meeting. With the limited reductions that can be made at the October-November-December meetings, the policy rate can be lowered to 17.5% at the end of the year. In this projection, we take the inflation, which we expect to be 16.3% at the end of the year, as a basis. While establishing the said policy direction, we think that the Fed’s decisions to reduce asset purchases before the end of the year and the global financial market volatility created by non-Fed factors should be taken into account in terms of stability.
Kaynak Tera Yatırım
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı