CBRT: No rate hike expectation, emphasis on tight moetary policy to continue

After Mr. Naci Ağbal took office, Central Bank switched to the Orthodox monetary policy and increased the policy interest rate.

After Mr. Naci Ağbal took office, Central Bank switched to the Orthodox monetary policy and increased the policy interest rate. At the same time, it has been promised to continue the tight monetary policy until the disinflation process is achieved. Within the scope of tightening monetary policy, the fact that inflation is still high indicates the necessity of keeping interest rates high.


We do not expect the Central Bank to change the policy rate on January 21st MPC. We expect the tight monetary policy stance to continue in the foreseeable future in the process of stabilizing TRY and foreign exchange reserves during the policy transformation process since the beginning of November. On the other hand, we can see the 17% point reached after the rate hike made above the expectations in the previous MPC as a rate that provides sufficient protection under current conditions. Nevertheless, we think that the Central Bank has the option to increase the interest rates in the upcoming meetings, as inflation risks will continue to trend up somewhere above the December level. Although we do not expect an interest rate hike in this MPC, we expect that the commitment to maintain a tight stance in combating inflation will be the main theme of the policy statement.


Upside risks in inflation; will remain active due to the pass-through effect of past exchange rate increases, commodity prices and food inflation. In this respect, it will be a difficult period in terms of inflation, especially in the first quarter. The PPI-CPI spreads were open and the December realization was also at a very high level. Perhaps the Central Bank may have an option to increase interest rates in the following months, compared to the peak of inflation. Later, the initiation and continuity of the disinflation process, which will probably take place in the second half of the year, will be the criterion of the Central Bank to cut interest rates. Until this stage, we expect financial conditions to be at the current tightness or tighter in the first half. Of course, we do not know how the epidemic will be at that time. In order to revive the economy, interest rates will be reduced as early as possible, but realization of this too early and in a period when conditions do not occur will have toxic effects on the economy, especially the increase in inflation.

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