CBRT Inflation Report: The new forecast path of inflation

At the 2nd Inflation Report Information Meeting of the year, which will be held tomorrow, we will evaluate the forecast path of the CBRT for inflation, the route it will adopt after not making any rate changes in the last MPC, and its approach to inflation. We think that the Central Bank should brin...

At the 2nd Inflation Report Information Meeting of the year, which will be held tomorrow, we will evaluate the forecast path of the CBRT for inflation, the route it will adopt after not making any rate changes in the last MPC, and its approach to inflation. We think that the Central Bank should bring a new approach to the 2022 forecasts that it put forward in its latest Inflation Report in January, in terms of the stratified increase in inflation on the axis of the latest geopolitical developments and the inertia factor in inflation. We think that the Central Bank will make a serious revision to the forecasts due to current factors that increase inflationary pressures.

 

In its latest Inflation Report in January, the Central Bank announced its 2022 year-end CPI forecast as 23.2%. In March, inflation had exceeded the 60% band due to the high volatility in food and energy prices and the depreciation of the lira from the past. We think that the reflections of the global commodity price movement centered on the last Russian war may shift this path upwards in the coming months. Therefore, the ranges in the previous forecast period are no longer valid today. The recent increase in oil prices and the price increases to be applied in the axis of exchange rate + global prices and the cost increases that will occur in this way may trigger an higher upside pressure on both producer and consumer prices. We will see how close the revision of the Central Bank's forecast table will come to market-based expectations. According to the April market participants' survey of the central bank, the current year-end inflation expectation rose to 46.44%, while the next 12-month inflation expectation rose to 28.41%. We expect year-end inflation to be just below the 60% band in December due to the base effect.

 

Liraization strategy is still highlighted as the main phenomenon in managing inflation. When we look at the price stability phenomenon linked to FX-linked product entries, the system seems to feed itself with account openings approaching 800 billion TRY, but it is observed that the dollar / TRY rate is 14.80 as of April 27. The depreciation of the lira and higher commodity prices pushed inflation to 61.1% and put Turkey's real interest rates deeply into negative territory. This is a factor that can put pressure on the lira, considering that the Fed will also increase interest rates in the foreseeable future. In this conjuncture, high commodity prices and increasing downside risks in exports may cause the current account deficit to rise.

 

We are yet to receive a signal of a return to orthodox politics. In the latest regulations, the CBRT revised some required reserve rules for banks in order to control loan growth and encourage the conversion of foreign currency into local currency. Of course, the detailed guidance of the Central bank on the framework of macroprudential measures specified in the last MPC will be important. Of course, the current structure of the Central Bank against the current inflationary risks and price pressures arouses curiosity. For this reason, the adequacy of the liraization strategy shaped around the FX-linked product in the fight against inflation will be questioned and Mr. Şahap Kavcıoğlu will be asked whether a rate hike is an option. While tightening policies have come to the fore in response to the effects of increasing inflation and negative capital movements in almost all developed and developing countries, it is seen that Turkey will not stay in this equation for a while and will continue with an exceptional approach.

Kaynak Tera Yatırım
Hibya Haber Ajansı

27 Nis 2022 - 23:56 - Dünya



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