Minister of Treasury and Finance, Mr. Nureddin Nebati spoke at the economist meeting where he gave details about the new economy model and the outlook for consumer prices. When we compile the notes from the meeting, the prominent titles and expressions are;
· We expect the inflation rate to peak around 40% in the coming months and not exceed 50% this year.
· Inflation rate may not fall below 30% until the end of the year.
· We expect the measures (TRY investment incentive package, currency protected deposit product) to help support the currency, resulting in $10 billion in corporate assets being converted into lira. I suggest you to follow the exchange rate movement in the upcoming period.
· The central bank is working on long-term financing to help banks hedge their long-term project loans.
· Credit policies will be applied more selectively from now on. Companies that produce and export will be given priority, and projects that will reduce the import of intermediate goods will also be financed.
· Interest rates should not be expected to rise. Turkey will not raise interest rates and this is the government's responsibility. The policy rate no longer matters.
· Income indexed bills are coming. (Income indexed in previous years, it was used to discount the future incomes of various SOEs to the present and to convert them into cash.)
· A year later, we will see together that we get the expected outputs from this model. Of course, we are considering stopping money-protected deposits when we reach an optimum point, but we have not reached that point yet.
· Fed's rate hikes will not affect Turkey.
From the perspective of Mr. Nebati; Within the new economic model, it is understood that the target headings focus on the following subjects: Balanced and sustainable growth, selective credit policy, improvement of the investment environment, reduction of inflation to single digits, improvement of foreign demand-oriented growth composition. In 2022, we discuss the necessity of keeping the fight against inflation at the forefront, and then furthering the efforts to ensure sustainable growth. At this stage, we think that the basic motivations of reducing inflation, ensuring sustainable growth and improving employment should be kept in balance, and others should not be ignored for an economic target.
2022 will be a tiring year on the inflation side. The depreciation of the lira and rising global energy prices were the main drivers of inflation. The inflation rate was 36.1% in December; It reached its highest level since the beginning of President Mr. Recep Tayyip Erdogan's 19-year rule. The rise in prices was fueled by a loss in the lira as the central bank cut the benchmark rate by 500 basis points in four consecutive meetings before interrupting the easing cycle on Thursday. According to the central bank's January market participants' survey, inflation expectations for the next 12 months rose from 21.39% to 25.37%. We consider that it is possible for inflation to reach over 50% within the year, with high realizations in the coming months. We think that periodic inflation, which may be 6-7% in January, will increase annual inflation to the 42-43% band, that high realizations in February and March may exceed the 45% band, and that a peak may be reached in a period like May.
Mr. Erdogan's economic perspective is that lower interest rates will also control consumer prices and increase growth. In the new economy perspective, the emphasis is on providing money inflows through exports and direct investments rather than providing hot money with high interest rates. At this stage, it is desired to create a model for foreign exchange financing in the economy to be at the point of business, capital, factory investment rather than portfolio-based investment that is likely to come out easily. Therefore, in the investment perspective, a channeling situation should be created not only towards shares and GDBS, but also towards direct investments that will create employment and growth. Foreign investors, who attach importance to Turkey and make analyzes, want a clearer picture of calculating the risks and benefits in terms of the investment environment in the current situation. Increasing risks to economic stability and price fluctuations in the recent period led to a decrease in the interest of foreign investors and accelerated the exit process. At the point of providing investment inflow, when factors such as less politicized and more business-oriented, stable, clear, predictable macroeconomic picture and manageable risk / high return earnings potential, combined with its strategic geopolitical location and trained youth employment potential, serious opportunities can be created for Turkey. This situation will also include new Turkish enterprises in global competition on the axis of the knowledge transfer provided by foreign direct investments and the young population with the potential to use new technological knowledge in the competitiveness of the economy in the future. In this respect, we attach great importance to Turkey's increasing efficiency and expertise in high technology.
The perspective on the current account deficit/balance of payments is to have a surplus in the balance sheet and to become a net exporter. Turkey is still a country that has to import a certain amount to ensure its growth. Especially in terms of continuity of production, there is no model with sufficient flexibility in terms of intermediate goods and energy imports. Therefore, it is understood that the structural transformation must be carried out exactly at the point of returning to net exports.
The Turkish currency stabilized somewhat after the government introduced emergency measures in December, with currency-protected deposits at the centre, to compensate lira savers for significant currency declines. Before that, it had lost half its value in three months. With the incentives, especially tax exemptions, to be given to companies that convert foreign currency and gold deposit accounts into time deposits in Turkish lira, it is tried to reflect this on the corporate demand side and to spread a widespread image. We still think that TRY investment incentives similar to side policy instruments and currency protected deposit product can be brought to the fore. The level and direction where inflation will remain will continue to keep the real interest rates of the lira in the deep negative zone. Of course, we make this prediction on the assumption that the policy rate will not be increased rapidly. We think that the volatility in TRY will continue as long as a return to generally accepted economic policies and a reaction mechanism are not established around the main policy.
Kaynak Tera Yatırım-Enver Erkan
Hibya Haber Ajansı