CBRT Expectations Survey: The inflation expectation for 2021 at 11.15%

In the CBRT January Expectations Survey, market participants' current year-end inflation expectation was 14.18%.

Looking at the short-term inflation expectations; It is expected that the January inflation is 1.35%, the February inflation is 0.69% and the March inflation is 0.83%. If inflation increases in line with the expectations in these months, annual inflation in January, February and March will be 14.60%, 14.98% and 15.28%, respectively.


Within the framework of the PPI-CPI gap in inflation, it is seen that the effects of cost increases continue. In this respect, the high course of PPI does not give good signals for the CPI increases in the coming months. Components such as the pass-through effect of past exchange rate increases to prices, the increase in commodity prices, and climatic factors that affect food inflation indicate that the general course of inflation will be upward in the next few months. We expect inflation to peak annually in April and focus on a downward course in the second half of the year. However, current factors make upside risks to forecasts active.


According to the average inflation forecasts for 12 and 24 months ahead, inflation is expected to be at 10.53% and 9.14%, respectively. Thus, the average of inflation expectations for 12 and 24 months ahead became 9.84%.


The WACF expectations for the end of the month were 17% as a result of the CBRT's determination of the 1-week repo rate as the only funding tool and no rate hike expectation from January 21st MPC. Interest rate expectations in the Repo and Reverse Repo Market increased from 16.09% to 17.09% for the end of the month. While there is a change from 12.87% to 12.59% in the 5-year GDS interest rate expectations 12 months later, it is expected that the 10-year GDS interest rates will be at the level of 12.30% after 12 months. In the previous forecast period, this expectation was 12.49%. The market forecasts the 1-week repo interest rate, which is the policy rate of the Central Bank, is expected to 17, 17, 15.92, 13.28 and 10.63% in the current period and after 3, 6, 12, 24-month periods respectively.


We expect the Central Bank to continue its policies based on its stance against inflation. Inflation risks remain high for the next few months, suggesting that monetary policy may be either tight or tighter. In this context, we do not expect easing from the Central Bank before the disinflation process begins in the second half of the year. Based on the outlook and realization of inflation, we think that another rate hike may come in case of additional risks.


We do not expect a change in the policy rate, which was 17% in next week's MPC.


We see an improvement in growth prospects. It is seen that the 2021 GDP expectation, which was 3.8% growth in the previous survey period, changed to 3.9% growth. The forecast for 2022 is 4.3% growth in the January survey period. Although we see the 1Q21 period as challenging due to tightening policies and the effect of coronavirus, we think that the growth outlook may improve in the later periods of the year with the expectation that normalization with vaccination may begin later in the year.


Exchange rate expectations were 8.09 for the end of 2021. We see that the exchange rate expectations for 12 months ahead are 8.16.


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