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The president of the Central Bank of the Republic of Turkey (CBRT), Murat Uysal, has announced the latest inflation report of the year. CBRT raised its year-end 2020 CPI forecast from 8.9 percent to 12.1 percent. The CBRT increased its 2020 year-end CPI forecast from 8.9 percent to 12.1 percent, and the 2021 year-end CPI forecast from 6.2 percent to 9.4 percent. In markets, the CBRT was expected to revise its year-end inflation forecast from 8.9 percent to around 10.5 percent in line with the YEP.
The highlights in the Uysal presentation are as follows:
We evaluate the possible effects of the Fed’s average inflation target
Global economic activity is below that before the epidemic
UNCERTAINTY CONTINUES ABOUT THE ECONOMY
Developed and developing countries continue with their expansionary policies
Limited entry into the debt market of developing countries in the last quarter
portfolio outflows from Turkey also continued in the third quarter
Turkey’s risk premium fluctuates and is being watched.
Turkey Risk Premium and Higher Wavy Watch
There was a rapid increase in the current account deficit
Starting in August, a certain tightening was achieved with the steps taken in the area of monetary policy and liquidity management. In fact, loan growth slowed significantly with the rise in interest rates.
WE WILL SEE POSSIBLE POSITIVE GROWTH IN 2020
High-frequency data suggests that recovery continues in September and October
With tightening financial conditions, we expect positive growth without any additional political support.
THE MAIN INDICATORS SHOW IMPROVEMENT IN EMPLOYMENT CONDITIONS
Only half of the job loss was recovered in the second quarter of the year
Short work assignments and current transfers played an important role in limiting the loss of family income. The main indicators show an increase in job offers and better job opportunities
WITH STRONG CREDIT ACCELERATION AND LOSS OF VALUE IN TL
Despite our prediction that inflation will tend to decline in the second half of the year, the CPI was higher than expected due to strong momentum from the cat.
THE GREATEST JOURNEY OF FOOD INFLATION CONTINUES
Core indicators point to an upward trend in third-quarter inflation driven by the real estate group.
The rise in food prices continues
Survey-based inflation expectations continued to rise in the third quarter of the year
EXPECTATIONS FOR INFLATION AND UNCERTAINTY ARE HIGH
Long-term inflation expectations and uncertainty remain high
We review our assumptions on import prices, food and external factors. We revise our import price assumption up depending on commodities such as industrial metal agricultural products and July-consistent energy prices. In the July report, we updated the food inflation forecast from 10.5 percent to 13.5 percent in exchange rate and raw.
We have lowered the forecast for food inflation from 8 percent to 10.5 percent.
CBRT INCREASED ITS YEAR-END 2020 CPI FORECAST FROM 8.9 PERCENT TO 12.1 PERCENT
We made our estimates within the framework that fiscal policies will be determined in coordination with monetary policies.
It will be 12.1 percent at the end of 2020, and after 2021 it will decrease to 9.4 percent, it will gain stability with 5 percent in the medium term.
CBRT YEAR-END CPI FORECAST 2021 9.4 PERCENT, PREVIOUS 6.2 PERCENT
CBRT increased its 2020 year-end CPI forecast from 8.9 percent to 12.1 percent, the 2021 year-end IPC forecast from 6.2 percent to 9.4 percent.
We revised our inflation forecast for the end of 2020 by 3.2 points to 12.1 percent. The increase in import prices denominated in Turkish lira was 1.6 points, the deficit update was 0.9 points.
Predictions are made assuming that there will be no second wave in the outbreak.
The exchange rate, the output gap and food prices had an upward impact on the inflation forecast. The predictions were made in accordance with the global framework that there will be no second wave in the epidemic. The low-interest environment was predicted to continue for a long time.
ADJUST ESTIMATION OF INFLATION, PRODUCTION GAP AND AFFECTED FOODS
In August, we began to take adjustment measures within the scope of liquidity measures. We made a change by gradually reducing the specific liquidity possibilities.
WE HAVE REACHED 500 BASE POINTS OF INCREASE IN THE WEIGHTED AVERAGE COST OF FINANCING
In September, we thought that tighter measures were needed to control inflation. In this context, we increase the policy rate by 200 basis points. We have achieved a gradual increase in the weighted cost of financing. We reduced the participation of the weekly and quarterly buyback auctions. We increased the weighted average cost of financing by 500 basis points.
‘THE NARROW MONEY POLICY WILL CONTINUE’
Tight monetary policy will continue until some improvement in the inflation outlook is achieved. During this period, the focus should be on the weighted average financing cost and the overnight window. The current composition of funding also shows rigidity
As the Central Bank, we do not have a target for the nominal or real exchange rate. We address the issue within the framework of financial stability. We want it to reach a base compatible with macroeconomic fundamentals.
Tight monetary policy will continue until some improvement in the inflation outlook is achieved. In this period, the focus should be on the weighted average financing cost and the overnight window. The current composition of funding also shows rigidity
As the Central Bank, we do not have a target for the nominal or real exchange rate. We address the issue within the framework of financial stability. We want it to reach a base compatible with macroeconomic fundamentals.
WE CAN EVALUATE THAT THE TURKISH LIRA IS EXTREMELY VALUE
When we look at the real exchange rate, we can assess that the Turkish lira is at an extremely worthless point.
WE ARE SENSITIVE TO THE EXCHANGE RATE ON FINANCIAL STABILITY
This worthless situation in the exchange rate creates risks to price stability and financial stability. We are sensitive to financial stability in the exchange rate
CARE IS TAKEN TO MEET EXCHANGE INTERESTS WITH MONETARY POLICY
Our banks need to use swap limits for TL with high liquidity in foreign currency. The main objective is to provide comfort in the liquidity management of the banking sector. Most of the financing needs of the system are covered by swap. Care is taken to ensure that swap rate levels are in line with monetary policy.
WE CAN USE EXCHANGE INTERESTS AS A TIGHTENING METHOD WHEN NECESSARY
We have the opportunity to change the swap rates when necessary.
There was pressure on Reserves due to the current account deficit, portfolio outflow, and debt payments, but we expect the pressure from the credit channel to ease with the adjustment. A somewhat more positive period is expected
OUR RESERVATIONS MAY COVER SHORT-TERM LIABILITIES
The CBRT reserves are at a level to meet our short-term liabilities, there is no problem in that regard.
REVERSED ROTATION AT THE PORTFOLIO OUTPUT MAY BE SUBJECTED
In the next period, we expect the pressure in the credit channel to gradually decrease with the tightening, and the stabilizing effect of the real exchange rate will come to light. Stagnation and reversal can occur in portfolio exits.
The pressure on the current account balance and reserves is expected to diminish and a positive period will begin. The importance of monetary stance will be critical here. The level of real interest rates will be important here, both in terms of portfolio preferences and portfolio preferences of residents. We take this into account when determining interest levels.
