We expect the CBRT to update its inflation forecasts upwards at the 4th Inflation Report Information Meeting of the year, which will be held tomorrow. We think that the pressure on inflation, increasing the effectiveness of current risk factors, increases its upward trend within the framework of the policy that will also be a factor in the weak lira and pricing behavior. In this context, we see the upward deviation range of the 16.2% year-end target announced in the MTP to be high.
Within the framework of the fact that the “core inflation perspective” is not applied in practice after the concept of “interest over inflation”, our main focus will be on the principles that the Central Bank will consider in interest rate indicators. Because; It will be tried to understand the destination of the latest monetary policy actions on which phenomena such as headline inflation, sub-inflation indicators or growth dynamics in terms of commercial loans will be the main focus. As the current return position of the lira is under -3.5% adjusted for inflation, it will be challenging in terms of factors such as money flows, carry trade approach, domestic deposit dollarization in the coming period, as it lags behind other developing countries in the comparison point. Considering that the Central Bank’s path is in the direction of “monetary easing”, this reveals the necessity of decreasing inflation. Although the base effect, which will be created by the periodic high increases in the conjugate period of last year, is expected to have a downward effect on annual inflation, we anticipate the compelling effects of current price phenomena, which are likely to increase the price hike momentum, in turning the base effect into an advantage.
With regard to the compelling effects of inflation, we specifically analyze the risk that secondary effects will make “temporary factors” valid for a longer period of time. Therefore, we maintain our view on the need for a sufficiently tight policy against inflation. In terms of factors such as price stability, reverse currency substitution, foreign exchange liabilities of the real sector, the degree of volatility in exchange rates should be minimal and forward price predictability should be high. In particular, the clarity and effectiveness of policy instruments within the control area are important for the implementation of central banking, as the risk factors regarding price stability also affect pricing behavior in an inflationary way. This, in fact, will be useful in controlling the price behavior of the Central Bank’s effective policy approach, at the point of secondary reflection of the effect of supply-sourced uncontrollable factors. We would like to remind you that global inflation trends may make the phenomenon of temporary factors permanent for a longer period of time and that Central banks of developed countries have evolved to the point of reducing monetary incentives.
We think that the latest loan rate cut by state banks is in the same perspective as the “slowdown due to monetary tightening in commercial loans” phenomenon, which is also included in the Central Bank’s policy text and which justifies the policy rate cut. Therefore, we have to take into account the causality of commercial loan growth as well as inflation indicators in terms of estimation on the basis of monetary policy. We will monitor the possible warming effects of monetary easing, which is not provided by economic conditions, to support economic growth stemming from credit growth, especially on inflation, and its reflections on the financial system risk appetite. Private banks may also have interest rate cuts following the public sector in terms of market competition; however, when factors such as asset-liability management, credit risk cost and maturity matching are combined with macro factors, they can be subject to the risk appetite of the financial system.
Although we think that the Central Bank will revise its year-end inflation forecast, which was 14.1% in the last reporting period, what will be the difference between the 16.2% and market-based expectations (CBRT October Market Participants Survey 17.6%) in the MTP? We’ll watch it show. The latest rate cut and current inflation dynamics have paved the way for some market players to revise their year-end forecasts towards the 18-20% range. At the same time, the perspective within the framework of the “limited space” assessment of monetary policy loosening is also important in shaping inferences about whether and to what extent the loosening will continue.
Kaynak Tera Yatırım-Enver Erkan
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı
