CBRT Market Participants Survey: January 12-month CPI forecast is 25.37%

In the CBRT January Market Participants Survey, the current year-end inflation expectation was 29.75%.

In the CBRT January Market Participants Survey, the current year-end inflation expectation was 29.75%. When we look at the short-term inflation expectations; It is expected that January inflation is 6.45%, February inflation is 3.04% and March inflation is 2.34%. If inflation increases in line with the expectations in these months, annual inflation in January, February and March will be 42.46%, 45.47% and 47.29%, respectively.


The deterioration in inflation expectations is accelerating gradually. The volatility and stickiness in pricing due to the factors created by the recent economic turmoil cause the level of inflation to solidify. We do not find the dovish perspective of the Central Bank beneficial in terms of lira volatility. The low policy clarity in question caused the lira to be exposed to irrational volatility levels for a certain period of time. Given the current USDTRY levels and divergences, the continued upward trend in inflation is to be expected for the first part of the year. Putting price stability into the background with the new economic perspective and not using the main policy tool as an answer shows that policies far from orthodoxy will continue to be followed.


According to the average inflation forecasts for the next 12 and 24 months, inflation is expected to be 25.37% and 15.54%, respectively. Thus, the average of inflation expectations for the next 12 and 24 months became 20.5%.


Interest rate expectations in the Repo and Reverse Repo Market were 14.27% for the end of the month. The market predicts the one-week repo rate, which is also the policy rate of the Central Bank, as 14, 14, 16.33 and 14.11% in the current month and 3, 12, and 24 month future expectations, respectively.


We do not expect any rate action at the MPC meeting next week. We think that the Central Bank is in the process of making a situation assessment for the current period during the evaluation of the current conditions. If rate cuts continue in a high inflation environment, they will have an increasing effect on exchange rate, inflation and market-based borrowing costs. It would be useful to keep the estimation range of these variables wide. Based on the new macroeconomic and financial foundations that will emerge, the Central Bank may be forced to increase interest rates under the conditions that will occur in the future. We evaluate the current policy ground as looser than it should be compared to economic criteria, especially inflation.


We see lower projections in growth expectations compared to this year. It is seen that the 2022 GDP expectation, which was 4.1% in the previous survey period, decreased to 3.7%. The forecast for 2023 was 4.2% growth in the January survey period. We have reservations that placing the growth-oriented new economy perspective practices on a ground other than the market economy will cause some problems. We group these risks primarily in terms of inflation and decreasing purchasing power, as well as increasing commercial risks. Demand shocks may occur in private consumption due to the decreasing purchasing power as a result of the increase in inflation. The increasing exchange rate volatility as a result of the unconventional policies aimed at easing financial conditions in the recent period, the continuously depreciating lira, the rise in bond yields and CDS risk premiums, the increasing foreign portfolio outflows and the correspondingly rising borrowing costs and the tighter financial conditions in terms of growth. We do not see it positively. In order to keep these volatilities under control, measures are taken in terms of lateral policy instruments, especially the exchange-protected TL deposit product. At this point, we expect the continuation of practices such as facilitating credit conditions in the implementation of growth-oriented policies, plus a broad fiscal policy ground. Since we consider the risk balance on growth to be on the downside, we also make moderate projections of 4.1% and 4% for 2022 and 2023, respectively.


In the current account balance, we will see the results of the practices in the field of the new economy perspective put into practice by the economy management, aimed at increasing exports. Accordingly, we would like it to be known that we draw attention to adverse risks such as risks related to the external demand outlook for exports and increased energy bills for imports. On the other hand, the improvement in the profile of 2021 was due to the decrease in the effects of the epidemic, and the strong outlook in exports and tourism. On imports, the slowdown in consumption-based imports and the neutralization of the effect of gold imports last year eased the pressure. However, the increase in energy costs on the import side neutralized this positive effect. With the realization of the current account balance in the last month of the year, we estimate that we have closed the year 2021 with a current account deficit of 16 billion dollars in total. This corresponds to approximately 2.1% of GDP. Compared to the market's current account balance projections, our expectations for 2022 and beyond are more moderate. The main reason for this is; Energy costs are likely to remain high as a result of the effects of the sharp depreciation of the lira. We think that loose monetary and fiscal policies to be implemented in order to keep the credit mechanism working and to support growth will further depreciate the lira.


Exchange rate expectations were 16.13 for the end of 2022. We see that the exchange rate expectations for the next 12 months are 16.85.

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