We do not have any expectations as the Central Bank is not in an action plane dependent on the inflation perspective and prefers a low band in policy interest rates due to many different reasons. While the factors of global war are fueling inflationary pressures in the world, we do not expect a response from the CBRT to these dynamics, which will pose difficulties in achieving the economic targets, although the effects from commodity and oil prices will increase similar pressures in Turkey.
Inflation is at 54.4%, the highest in 20 years, and the Russian invasion of Ukraine will keep inflation higher. The real interest rate is by far the lowest among emerging markets. However, the Central Bank has been drawn to a line that adopts lower interest rates for economic growth and under the policy response it does not tend to higher inflation. In an environment where global financial risks are increasing mainly due to price stability risks and unsustainable negative real interest rate position, we do not find this level of the Central Bank sustainable and we think that market conditions will involve more challenging dynamics to tighten monetary policy.
Although we do not expect any action from the Central Bank at the March 17 meeting, we understand that the price stability factor will be carried out within the framework of financial products and fiscal policy control mechanism in the near future. For this reason, we think that the Central Bank's decisions are also outside of the non-economic factors and the usual framework, and we do not receive any signals for a transition to an orthodox policy in the near future.
The growth policy, which the government and the economy management are considering for the period 2022 and beyond, and which aims to achieve price stability in terms of higher exports, a surplus in the current account balance and foreign exchange inflows, is difficult to achieve in terms of external effects. For this reason, we think that the current situation that the concept of surplus regarding the current account balance cannot be valid over high energy prices and decreased export and service revenues should be taken into account. At the same time, factors such as risk balances that will disrupt the financing side will increase the orientation to resources such as the use of reserves.
In this period, the phenomenon of price stability should be managed with the main policy tools in a framework that takes into account the global inflation risks and is compatible with similar countries. On the other hand, high interest rates are not demanded by the government on the grounds that it will limit growth, and price stability is managed by practices other than traditional instruments. In order to control inflation, practices such as price controls, inspections, VAT reductions and the FX-linked financial instrument are examples of this. We think that such products and practices will not reduce the general direction of inflation, and that global commodity prices and the exchange rate, which is affected by the risk phenomenon, will continue to have high effects on inflation. Regarding the planning of the Central Bank, the risk balances in question should be taken into account and proactive action should be taken to change the general trend. For now, we think that the current policy is desirable to continue.
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