CBRT: Kavcıoğlu's Presentation of the Parliamentary Plan and Budget Committee

Kavcıoğlu said that Turkey's 2021 current account deficit is seen between 15 – 17 billion dollars.

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Speaking within the scope of the Parliamentary Plan and Budget Committee Presentation, the Chairman of the CBRT, Mr. Şahap Kavcıoğlu said that supply problems such as the increase in food and import prices, the jump in administered prices and the developments in demand due to the loosening of restrictions accelerate inflation. Reiterating his expectation of a current account surplus, Kavcıoğlu said that Turkey's 2021 current account deficit is seen between 15 – 17 billion dollars.

 

The topics covered in the presentation and our own comments on them;

 

·        The Central Bank cut interest rates last month by evaluating demand factors, core inflation developments and supply shocks that may be affected by monetary policy.

·        External demand conditions and tight monetary policy have a positive effect on the current account balance.

·        Leading indicators show that economic activity continued to remain strong in the third quarter.

 

It is seen that the factors that create a perspective for the Central Bank's rate cut are focused on "temporary inflation" and "commercial loans". Therefore, we can say that the growth perspective is actually included in the equation. In this respect, we think that the core inflation perspective does not have a solid basis, as the increase in inflation will not prevent the Central Bank from reducing interest rates. This policy plane causes us to have reservations about “early monetary easing” and “implementing unorthodox monetary policy”. We have detailed our monetary policy comments on these reservations in our "Tera Macro Overview October 2021" report, which we will publish today.

 

The CBRT's guidance on low interest rates despite high inflation increases the depreciation pressure on the TRY. In addition to the risks to financial stability and price stability (weak lira, renewed inflation concerns due to rising energy prices), financial and non-economic factors (increased tension in Northern Syria) that also affect the risk profile are monitored in terms of market movements. Globally, the increasing pressure of US bond yields may indicate a market pressure that will be felt in different layers in EMs. However, the TRY has already been subject to erosion, well above the EM standard, with a 25% depreciation since March 20, 2021. Factors such as financial risks, a weakening yield profile that will not help the price stability target, and the stratification of global effects by internal factors can be expected to continue the negative effects on the lira. In this respect, we think that the Central Bank's path, which has a different profile from other EMs, may form the basis of the risk of further lira erosion.

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CBRT: Kavcıoğlu's Presentation of the Parliamentary Plan and Budget Committee
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