In the CBRT April Market Participants Survey, the current year-end inflation expectation was 46.44%. When we look at the short-term inflation expectations; April inflation is expected to be 4.23%, May inflation is 2.86% and June inflation is 2.25%. If inflation increases in line with the expectations in these months, annual inflation in April, May and June will be 65.19%, 68.42% and 68.92%, respectively.

 

The deterioration in inflation expectations continues. Faced with the highest inflation rates in 20 years, the Turkish economy is being tested by the exchange rate increases that started in late 2021 and the price increases triggered by this. Costs and, accordingly, final prices will continue to be affected, as these factors will continue to put pressure on current commodity prices with the addition of factors brought by the Ukraine war. As of April, the increase effect of the increase in global energy and commodity prices will be seen with both primary and spillover effects. We expect the course of inflation in current bands or at higher rates to be valid until the last month of the year, with the high base of last year to operate in December and a decrease in the last phase.

 

According to the average inflation forecasts for the next 12 and 24 months, inflation is expected to be 28.41% and 17.68%, respectively. Thus, the average of inflation expectations for the next 12 and 24 months became 23%.

 

Interest rate expectations in the Repo and Reverse Repo Market were 14% for the end of the month. The market predicts the one-week repo rate, which is the policy rate of the Central Bank, as 14, 14, 14 and 16.45% in the current month and 3, 12, and 24 months ahead expectations, respectively.

 

In the current inflation outlook, we observe that interest rate expectations are still stable. While market participants expect the policy rate to remain stable in the short-term horizon within the framework of the current economic perspective, they think that interest rates will be increased and probably will have to be increased in the longer-term forecast horizon. On the other hand, we see that even if the Central Bank increases interest rates in the short or medium term, it will remain well below inflation and in a negative real interest rate position. For this reason, the way to be covered in inflation or monetary tightening increases. We understand that within the scope of the central bank's liraization strategy, it is desired to attract the use of TRY financial instruments within the framework of the FX-linked product, and that it is not desired to increase interest rates in line with the goals of the economy management.

 

We see downward changes in growth expectations. The 2022 GDP expectation was lowered to 3.2%. The forecast for 2023 was 4% growth in the April survey period. The issue of growth is the number one goal of economic management. In this context, we see that the economy management is trying to use the factors that support growth and to eliminate the factors that will harm growth. In terms of growth, we see problems such as the effects of domestic and foreign demand, the decrease in the contribution of input and energy problems to production in the framework of the latest geopolitical risks and the global economic slowdown as a downward concern. We expect the continuation of practices such as facilitating credit conditions in the implementation of growth-oriented policies, plus a broad fiscal policy ground. In order to keep the domestic demand constant, the government tries to ensure that real wages remain high and reduces the taxes on consumption for basic needs. Although we expect growth to decline to 3.7% this year, we evaluate the current risk balance to the downside.

 

The current account deficit expectations of market participants are increasing, especially if we include the conditions of the last war due to the increase in energy imports, we expect the current account deficit to show a trend towards 2020 levels this year. We think that we will see the price effect especially on the import side in terms of exchange rate stability in terms of broad fiscal and monetary policy. This situation eliminates the practicality of a strategy in the form of foreign exchange inflows through the current account balance. Within the framework of the risks brought by the Russian war, we consider that risks such as energy imports, a decline in tourism revenues and a decrease in the contribution of exports will not help the current account balance. While market participants expect a current account deficit of $27.4 billion in 2022, we think that a current account deficit of $53 billion may be realized by weighting upside risks.

 

Exchange rate expectations were 16.85 for the end of 2022. We see that the exchange rate expectations for the next 12 months are 17.84.

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