Although we are watching the rise in inflation and we expect high price increase pressure in the coming months, we do not expect any action from the Central Bank within the framework of the new economy perspective created. In this context, we consider that the threat from inflation will be ignored on the monetary policy side and will be dealt with mostly through measures within the scope of fiscal policy. We expect interest rates to be kept constant at the Central Bank meeting that will take place tomorrow.
Under normal circumstances, concerted rate hikes in response to a rise in inflation in an orthodox policy would have helped keep inflation rates low or prevent it from going too high. In this context, economic conditions still exert compelling effects by revealing the need for tighter monetary policy. In particular, the gap between interest and inflation, the loss of savings and investments to inflation and the tighter financial conditions in the developed world make it difficult to manage the current process. In the new economy perspective, the political authority wants lower interest rates to continue to ensure growth. Although inflation approached 50% last month, the stricter policy implementation of the Central Bank is not a possibility under consideration through these conditions. As it can be understood from the economic package announced at the weekend, the fight against inflation is based on fiscal policy in terms of price controls and the reduction of consumption taxes, exchange rate stability with financial products that encourage TRY investment.
In January, annual CPI inflation reached the highest level of the last 20 years with 48.7%, sending real interest rates to the lowest level of emerging markets with -34.7%. In December, the CBRT announced that the “limited use of space for easing” had been completed. A tighter monetary policy, regional geopolitics and high inflation in developed economies are aimed at preventing the central bank from lowering interest rates. Therefore, although the central bank’s main motive is to loosen the monetary policy, both the risk that the depreciation of the lira will further fuel inflation and the rising interest rates in the developed world do not indicate a situation that will allow the Central bank to further reduce interest rates. A tighter monetary policy, regional geopolitics and high inflation in developed economies make it difficult to maintain the current loose policy as well as to implement a looser policy.
Under current circumstances, we estimate that the central bank will be in standby mode on interest rates for a significant portion of 2022. We do not foresee an increase in interest rates in the first place, within the scope of the role transferred to financial policy implementations and TL-based financial products in the fight against inflation. The Fed’s rapid interest rate hikes, the behavior of depositors who have already switched to currency-protected deposits at the point of protection from inflation, and the change in price cycles accordingly should be taken into account at the point of monitoring current expectations. The fact that we have been following more stable bands on the exchange rate since the end of December presents a relatively comfortable concept for the management of inflationary effects that may come from this source, but it is important to maintain this stability. We think that the CBRT still applies an exceptional policy in an environment where monetary policy changes in developed countries and the preparation of emerging market peers are followed.
Kaynak Tera Yatırım-Enver Erkan
Hibya Haber Ajansı