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CBRT Market Participants Survey: Inflation forecasts rises to 23.85%

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In the CBRT December Market Participants Survey, the current year-end inflation expectation was 23.85%. When we look at the short-term inflation expectations; December inflation is expected to be 3.37%, January inflation to 2.99% and February inflation to 1.96%. If inflation increases in line with the expectations in the said months, annual inflation in December, January and February will be 23.85%, 25.45% and 26.75%, respectively.


There are many factors that underlie the deterioration in inflation expectations, the most important of which is the increasing sense of stickiness that inflation will remain high. In this regard, the fact that there is a huge difference between the declared inflation rates and the inflation felt by the public causes the purchasing power to weaken gradually due to the variables such as the wages determined in the first place. Inflationist expectations, on the other hand, began to strengthen rapidly, primarily due to cost factors. At the moment, looking at the market outlook, the prices of many goods, especially basic needs, have increased significantly, and the expectations for further rise in prices increase the tendency to stock up on one side, while the rush to collect goods from the market brings about a temporary increase in demand. These factors will bring the stickiness factor to the fore as the biggest obstacle to the decrease in inflation rates.


The implementation of expansionary policies in the economy seems to increase inflation even more. For this reason, we think that excessively loose monetary policy will exacerbate the problems. In particular, cost inflation with the exchange rate will cause general inflation rates to increase in the coming months. If we consider the effect of some variables such as the minimum wage to increase unemployment in the labor market, the gradually decreasing purchasing power, the ever-opening gap between incomes and prices, and the resulting decrease in demand in the market carry the risk of having a damaging and reducing effect on the growth side.


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According to the average inflation forecasts for the next 12 and 24 months, inflation is expected to be 21.39% and 14.41%, respectively. Thus, the average of inflation expectations for the next 12 and 24 months became 17.9%.


Interest rate expectations in the Repo and Reverse Repo Market were 14.93% for the end of the month. The market predicts the one-week repo rate, which is also the policy rate of the Central Bank, as 14.53, 14.28, 14.41 and 13.82 in the current month and 3, 12, and 24 month future expectations, respectively.


The issue of the Central Bank’s rate cuts has become increasingly challenging, affecting sustainability in the economy. Market participants predict that rate cuts will continue despite the challenging conditions in inflation. In fact, this can be seen as the most important negative factor reflected in pricing behavior. We do not expect the status quo in question to change without a serious transformation or change in approach in monetary policy. Therefore, our inflation expectations are not optimistic at this stage. On the other hand, we think that the conditions for monetary tightening have already been formed, but the government and the Central Bank’s bar is much higher than in the past for this transformation. The Central Bank will reduce interest rates more slowly in the next period within the scope of the limited space emphasis, but the policy will probably remain on the expansionary side.


We see short-term optimism in growth expectations, and lower projections compared to next year. It is seen that the 2021 GDP expectation, which was 9.2% in the previous survey period, increased to 9.9%. The forecast for 2022 was 4.1% growth in the December survey period. This year’s growth indicators seem to exceed the previous projections by being encouraged by expansionary policies in the last quarter. In this respect, we think that the 2021 growth will be in double digits. Against this; We see the risks for the next year as downside in the growth outlook due to the bottleneck in the supply chains, the effect of inflationary pressures, the damage of the decreasing purchasing power to consumption trends and the adverse risks in the current account balance.


Exchange rate expectations were 13.77 for the end of 2021. We see that the exchange rate expectations for the next 12 months are 15.56.

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Hibya Haber Ajansı

Kaynak: Hibya Haber Ajansı

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