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CBRT: The real interest rate well below the peers

Bu haber 13 Nisan 2022 - 10:00 'de eklendi ve kez görüntülendi.

Despite policy threats from rising inflation rates, the central bank is unlikely to move interest rates in the near term. For this reason, we expect the CBRT to keep the interest rates constant and to evaluate the inflation forecasts on the axis of cyclicity and temporary geopolitical effects, in li…
Despite policy threats from rising inflation rates, the central bank is unlikely to move interest rates in the near term. For this reason, we expect the CBRT to keep the interest rates constant and to evaluate the inflation forecasts on the axis of cyclicity and temporary geopolitical effects, in line with the views of the economy management, at its April 14 meeting. We anticipate that inflationary pressures will increase in the coming months due to the multiplicative reflection of the new dynamics created by the Russia-Ukraine war.   Inflation rose to 61.1% in March, the highest reading since 2002. Inflation is at a 20-year high and Russia's invasion of Ukraine will likely keep inflation high. The real interest rate (one-week repo rate minus inflation) is by far the lowest among emerging markets at minus 47.1%. It is known that the political will and, accordingly, the economy management want interest rates not to be high for high economic growth. There is a possibility that negative real interest rates will stimulate foreign exchange demand, low interest rates will heat inflation compared to general demand, and this will affect exchange rate movements and price expectations.   Recent geostrategic and economic developments have the potential to reflect on Turkey's economic indicators and financial market movements, pointing to a phenomenon that will particularly affect the inflation and current account deficit profile. Domestic producer inflation will be greatly affected by world input prices, and the PPI, currently at 115%, could rise further. We've been talking about the spillover effect on the current CPI for a long time, and the current profile already points to a post-global price chart, as the general rise in commodity prices, especially Brent oil, will amplify this price spiral effect. We expect inflation to continue at its current levels until the end of the year, especially as a result of Russia's invasion of Ukraine.   We do not expect any action from the Central Bank for a while, and we foresee a policy expansion in line with the growth-oriented targets of the economy administration for at least one more quarter. If the expectation of depreciation in TRY comes to the fore due to the Fed's rate hikes, the exchange rate effect may push inflation up again. The fight against inflation seems to have been largely transferred from monetary policy instruments to fiscal policy and liraization strategy. In this process, we see that the FX-protected deposit account will be at the center of mitigating the economic shocks caused by the exchange rates. We have reservations about the impact of the liraization strategy, which includes price control mechanisms and TRY-based financial product incentives, to ensure continuity.   Russia's invasion of Ukraine will keep inflation high for a longer period of time. However, we do not expect the CBRT to show a proactive attitude towards these high inflationary phenomena. The path regarding low interest rates will continue to be adopted in the near future, in order to achieve the objectives of the economy management. The compelling conditions for the transition to orthodox policy may increase its weight in the future. Kaynak Tera Yatırım Hibya Haber Ajansı