11 of the 14 economists surveyed by Reuters think that the CBRT will keep the policy rate unchanged this month. While one institution participating in the survey predicted that the weekly repo rate would be reduced by 50 basis points to 12.50 percent, TRINT=ECI, while two institutions predicted a 100 basis point reduction.
Despite the inflation exceeding 80 percent last month and the ongoing global tightening cycle, the CBRT cut the policy rate and cited the loss of momentum in the economy as the reason.
Inflation, which started to rise rapidly as of November last year, climbed to record levels with the depreciation of TL. Rising global energy costs after Russia’s invasion of Ukraine in February fueled price increases and delayed the government’s current account surplus target for at least 3 years.
YEAR-END FORECAST
Economists have predicted that inflation may be nearing its peak lately due to the fall in energy prices and the slowdown in food prices.
While the CBRT predicted that inflation would approach 90 percent in the fall and close the year at 60.4 percent, the government predicted that inflation would fall to 65 percent in the Medium Term Program. In Reuters’ inflation survey, the median estimate of economists for the end of the year is 70 percent.
“UNPREDICTABLE”
Every month, more and more economists choose not to participate in Reuters polls, stating that the CBRT’s decisions, acting in line with President Tayyip Erdogan’s low interest demand, are unpredictable.
At the end of the year, three economists expect the policy rate to remain constant at 13 percent, while three economists expect the interest rate expectation survey to remain unchanged at 12 percent.
Capital Economics senior emerging markets economist, Liam Peach, on the other hand, predicted that after the monthly decrease in industrial production data released on Tuesday, the CBRT may reduce the policy rate to 12 percent due to the moderation in growth.
The CBRT, on the other hand, stated that the updated policy rate level under the current outlook after the cut last month was “sufficient”. Bankers, on the other hand, said that the adequate statement was a clear sign that the rate cut would not continue in September.
In line with the demands of Erdoğan, who defends the view that the interest rate causes inflation, the CBRT gradually reduced the policy rate by 500 basis points to 14 percent at the end of last year, and did not change the policy rate until August despite the rise in inflation.
LOSE VALUE BELOW 2 PERCENT
The lira has lost less than 2 percent against the dollar since the surprise rate cut last month. On a cumulative basis, the TL has depreciated by nearly 19 percent since the end of April, by 28 percent since the beginning of the year, and by 54 percent in the last year. Last year, the Turkish lira lost more than 40 percent of its value.
After the interest rate cut, the CBRT also took steps that would make it more decisive in the loan and bond market. While giving priority to net exports, employment and investment-oriented loans, it is predicted that this will result in a permanent current account surplus and that this balance will bring a permanent decrease in inflation. Additional bond holding obligations were imposed by the CBRT on loans not included in this area.
Banks complain that they are no longer able to give some corporate loans due to their bond obligations. Companies, on the other hand, complain about access to credit despite the cheaper costs. Possible messages of the CBRT on this subject will also be followed in the PPK text.
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