The central bank; In the 2nd Inflation Report meeting of the year, made upward revisions compared to the previous forecast period, within the framework of the highest inflation outlook for many years. According to this; Citing the impact of the rising cost of energy imports and the weak lira, it raised its year-end inflation forecast to 42.8% from 23.2% in January. The bank predicted that consumer inflation would slow to 12.9% by the end of next year before reaching around 8.3% in 2024. In Governor Mr. Şahap Kavcıoğlu's presentation, the effects of record-breaking energy prices were evaluated as temporary, and after May, disinflation prediction, liraization strategy and control area in inflation were brought to the fore.

 

Some highlights from the CBRT Inflation Report meeting;

 

·        Russia's invasion of Ukraine resulted in record energy prices and a larger trade deficit. A sustainable balance in Turkey's current account is the key to achieving price stability targets.

for 2022;

·        Food prices, which make up about a quarter of the consumer inflation basket, are expected to increase by 49% annually until December, revised upwards from the 24.2% forecast in January.

·        The rising cost of imports only in lira terms contributed 5.5 points to this year's inflation forecast, while food inflation contributed 2.8 points. Taxes accounted for 2.1 points of the increase, and the 9.3 percentage point trend, which is called the main trend of inflation. Output gap update: -0.1 points.

·        Oil price forecast revised from $80.4/barrel to $102.2/barrel.

for 2023;

·        2023 inflation expectation was revised from 8.2% to 12.9%. Inflation is expected to occur in the range of 8.1-17.7% (January estimate: 3.4-13%) with 70% probability.

·        Turkish lira import prices update: +2.2 points, Output gap update: -0.1 points. The food inflation forecast was revised from 10% to 15%. The effect of the update on food inflation is +0.7 points. Impact of the update on the main trend in the initial conditions: +1.9 points.

·        Oil price forecast was revised from $74.3/barrel to $93.9/barrel.

 

When we evaluate the revisions made in the estimations, it is seen that the Central Bank has made more optimistic revisions according to the market stance, as in the last few Inflation Reports. On the estimation path, the striking phenomenon stands out as inflation pressures, which will be quite lively in the short term. Inflation, which we expect to rise above the 65% band in April, is expected to increase towards the 75% band in May in the forecast horizon of the Central Bank. At this point, we would like to state that we are very cautious about the disinflation expectation after May, because we think that a return to the 40% path at the end of the year is highly unlikely, even under normal conditions, even assuming that the exchange rate remains stable at current levels. Our estimation is 2022 inflation that may occur within the 55-60% band with a base effect that will operate in December at the end of the year.

 

Regarding the possibility of rate hikes, we understand from today's guidance that there is no agenda within the framework of the recent approach of both the Central Bank and the government and the measures taken. Currently, the possibility of using monetary policy as an interest rate increase is not considered. Within the framework of the macro-prudential measures taken recently, it is seen that the situation is desired to be maintained without using the interest weapon, and an effort is being made to create a systematic in this way. Similar to the required reserve decision taken for commercial loans, indirect policy practices may continue in favor of TRY and against foreign exchange. This will mean a deepening of negative real interest rates for both savers and borrowers. This situation may cause a demand for foreign currency that will occur with fixed TRY interest loans and may continue to keep savings in TRY at an unattractive point.

 

Regarding the low interest environment that the economy administration wants to create, a perspective is being created in the form of supporting loans based on cheap funding. Firstly; As the government has announced, backed loans that will decrease up to 9% interest rate are coming to the fore. Funding support to banks to further support loans will also come from the Central Bank. In his report presentation today, Mr. Kavcıoğlu announced a 3-month repo facility with a lower interest rate than the policy rate. Thus, it is aimed to both extend the maturity and lower the funding interest rate. The cheapening of funding is important in that banks direct this cheap resource to credit outlets. Although the central bank takes measures against the loans that it feels are not directed to investment due to the selectivity in loans, but to domestic demand and foreign exchange demand, it wants loans to develop in a way that will support growth in terms of general perspective. It also creates an effect by providing a long-term support advantage in funding to those who encourage the conversion from FX to TRY-based FX-linked deposit. The general perspective is to support loan growth with a longer-term and cheaper source of funds compared to the bank's weekly borrowing. We consider that the growth-oriented loan support strategy will not be supportive in terms of monetary policy and inflation, and that inflation will increase even more in a low interest rate environment.

 

As a result; A focus point where it is thought to continue the growth-oriented economy perspective and where price stability is sought together with macro-prudential measures is maintained. At this stage, we consider that the developments in global financial conditions and the current geopolitical risk axis will have significant effects on inflation and price stability. On the other hand, although domestic demand shows signs of slowing down to a certain extent, As Mr. Kavcıoğlu stated, there is a growth of up to 7% in 1Q22, and last year's rates also indicated that the economy grew above its long-term average. In 2Q22, the first effects show that a good start was made in terms of growth and there will be a limited slowdown. When a shock effect on global growth that will affect exports continues, growth risks will evolve downwards, no matter how supportive the policies. The continuation of the support in loans may not only support growth rates, but also increase inflation in the future.

Kaynak Tera Yatırım
Hibya Haber Ajansı