We anticipate that October inflation figures will keep the upside risk weighting ahead and that the seasonally high realizations will neutralize the base effect that is expected to operate under normal conditions. Therefore, we expect October inflation, which is expected to be 2.1% on a monthly basis, to keep headline inflation at 19.6% on an annual basis. Recently, with the price controls mechanism initiated centrally within the framework of the increase in food prices; Factors such as the weak lira, global energy prices, energy and fuel price hikes, directed prices, clothing prices, service prices and VAT/SCT brackets will be intertwined. In response to the risk balance we have pointed out; We think that the Central Bank, which has reduced interest rates by 300 basis points in total in the last 2 months, does not take inflation as a sign at this stage and we do not consider the Bank likely to show any policy reaction.
When we look at the data we have for October; we see that higher energy prices and weak lira are at the forefront. In addition to global cost pressures, the ongoing weakening of the local currency is layering inflationary effects. This is because the distress is caused by both supply-driven factors and currency volatility distorting pricing levels and behavior. Now; At this point, we mentioned that although supply-related factors are not in the intervention area, the effectiveness of monetary policy can control secondary effects. The control in primary effects is; to ensure the stability of the currency. Thus, additional elements in the translation of global cost pressures to the lira could be eliminated. We think that the ongoing depreciation in the lira has increased the perceived supply-driven pricing pressure.
As the Central Bank lowers the interest rates, the lira-based real returns remain in the negative zone in the environment of higher inflation. The inflation adjusted interest rate will be below -3% with the latest policy rate cuts and inflation increases or additional rate cuts will deepen this negative yield position. At this level, we observe that the Central Bank’s promise to keep the interest rates above both the actual and expected inflation has no application. This reveals that other factors such as growth, credit mechanism and current account balance are periodically evaluated in monetary policy implementation.
Therefore, we do not expect the Central Bank to show any tightening reaction despite the uncontrolled inflation. The Central Bank, which expects inflation to normalize in a cyclical manner, may also be addressing the path of increasing exports and providing a current account surplus in the low-yield, weak-level course of the lira in the price stability phenomenon. At the same time, rate cuts have been made to support the slowdown in commercial loan growth stemming from the previous monetary tightening. However, we would like to point out the risk that these policy movements will further warm the inflation rate. Adding new variables, especially the weak lira, to the cost elements that have not yet been reflected, will make it difficult to maintain price stability and reduce inflation. This will be the biggest barrier to de-dollarization. The CBRT probably has little room left to loosen the policy rate, which is 16%, after the more than expected rate cuts. However, in the light of the factors and criteria we have mentioned, there may be a possibility that the interest rate will decrease further, albeit limited.
Kaynak Tera Yatırım-Enver Erkan
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı
