In an environment where factors such as food and pandemic conditions, which are thought to affect inflation temporarily, increase the weight and raise the general inflation outlook, CBRT Governor Mr. Şahap Kavcıoğlu emphasized the importance of “core indicators” and showed that there could be a change in approach in the focus of monetary policy. According to this; prominent emphasis: “Extraordinary conditions, especially due to the pandemic, increase the importance of core inflation indicators. While determining the global monetary policy stance, basic indicators excluding temporary factors arising from areas outside the sphere of influence of monetary policy are taken as basis”. This actually shows that the following change may occur in the planning and forms the basis for the answer to the question of which inflation will be taken as a basis: After the previous guidance to keep the benchmark interest rate above inflation, the role of “core prices” in monetary policy will increase even more.
Highlights of Mr. Kavcıoğlu’s speech;
· “Temporary” CPI pressures will soon disappear.
· Globally, monetary policy is based on core indicators.
· Turkey will give “weight” to core inflation while determining its monetary policy.
· There is room for improvement in inflation and reserves.
· Turkey is one of the few economies that offer real interest rates.
· The cases of Covid-19 are relatively low in Turkey.
· A rapid recovery was observed in the service sector.
· High investment appetite is observed in companies.
· High interest rates limit access to credit.
· Inflation will slow down in 4Q21.
To understand the difference between general inflation and core inflation approach, it is necessary to see the following: Annual inflation, which was announced as 18.95% in July, continued to increase in August and rose to 19.25%. Core inflation (indicator C), which excludes volatile items such as food and energy, decreased from 17.22% in July to 16.76% in August. Since the Kavcıoğlu administration has promised to keep the benchmark interest rate above the realized and expected inflation until this month, the reactive movement after August inflation is a matter of curiosity, and the emphasis on core inflation shows that a move like an interest rate hike against headline inflation is not expected. Because the movement in headline inflation is based on temporary and uncontrollable factors, and the Central Bank thinks that the real interest rate is still positive due to the low core inflation. As known; President Mr. Recep Tayyip Erdoğan, on the other hand, pointed out the current period in his predictions regarding inflation and interest rate policy, and evaluated that interest rates could decrease.
Therefore, it seems that core inflation may be more effective in the market’s monetary policy thoughts than the fact that “high inflation leaves no room for interest rate cuts”. Therefore, negative real returns against headline inflation will not be a criterion. While the demand factor, which is under the control of the Central Bank and the banking authority, is kept under some control through consumer loans, some measures are also taken to reduce the impact of uncontrolled items, especially food (such as tax reset on some imported food products published in the Official Gazette today. In this environment, it will be desired to reduce the price effect by increasing the product entry from outside). It is understood that the Central Bank will look for an opportunity to cut interest rates rather than a rate hike that will respond quickly to the increasing inflation.
Kaynak Tera Yatırım
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı
