CBRT Market Participants Survey: Year-end inflation expectation rises to 70.6%

In the CBRT July Market Participants Survey, the current year-end inflation expectation was 70.60%. When we look at the short-term inflation expectations; August inflation is expected to be 2.57%, September inflation to 3.28% and October inflation to 3.67%. If inflation increases in line with the expectations in these months, annual inflation in August, September and October will be 82.89%, 86.55% and 88.88%, respectively.

While the CBRT revised its year-end forecast from 42.8% to 60.4% in its latest Inflation Report, Market Participants expect almost 10 points above this. The Central Bank’s perspective is that since 2Q22, increases in global commodity prices, primarily energy and food, supply constraints caused by the ongoing disruptions in the global supply chain, and exchange rate developments continue to put pressure on consumer prices. We expect the high price effect to be seen later in the year due to reasons such as exchange rate, domestic pricing factors, oil and commodity prices, demand-side movements caused by deteriorating inflation expectations and central price adjustments.

According to the average inflation forecasts for the next 12 and 24 months, inflation is expected to be 41.99% and 24.35%, respectively. Thus, the average of inflation expectations for the next 12 and 24 months became 33.17%. Inflation expectation after 5 years increased from 10.21% to 10.72%.

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, 16.50 and 19.90% in the current month and 3, 12, and 24 month future expectations, respectively.

The CBRT is expected to keep the policy rate constant this month and for the next 3 months. This shows that its negative real position will continue to remain in a rather deep position against inflation. Despite the challenging conditions, the Central Bank does not signal a return to its orthodox monetary policy and rate hikes. Market participants expect tightening in monetary policy after the 12-month period. Although we agree with this view, we do not expect a change in interest rates at the 18 August meeting.

We see an increase in growth expectations for this year. The 2022 GDP expectation has been increased to 3.7%. The forecast for 2023 was 3.8% growth in the August survey period. Growth continues to be strong as of the end of the year. However, we expect some weakening for the second half of the year. Recently, leading macroeconomic indicators point to a slight slowdown in economic activity. Risks related to gas flow on the European side, planning and stocking related to managing this risk before winter will be decisive and it will be monitored how much it can balance the effects in terms of external demand balance and recession effects.

Current account deficit expectations for 2022 from 37.54 billion dollars to 39.3 billion dollars; For 2023, it increased from $24.36 billion to $25.45 billion. Current account deficit expectations of market participants continue to increase. Our year-end expectation in the current account balance is 45 billion dollars. We observe that the foreign trade deficit is still effective in the rise in the current account deficit. If the recent decline in commodity prices can become continuous, it may alleviate the negative impact here somewhat. However, commodity prices, especially energy, are still above the previous period balances. While we expect the decrease in domestic demand to reduce import volume and non-energy imports, we expect commodity prices to keep the import bill high in general. On the export side, slowdown in global economic activity and future recession risks seem to be potential problems. The balance of tourism and the service sector in general has a positive effect on the current account balance. Data on the global travel industry and Turkish Airlines’ passenger traffic confirm the current strong outlook in terms of service balance.

Exchange rate expectations were 19.65 for the end of 2022. We see that the exchange rate expectations for the next 12 months are 22.03. The rise in year-end exchange rate expectations continued. Since the exchange rate forecasts in the market are generally compatible with the forward rate of the relevant period, such expectations change as the spot rate changes. We think that the value of TRY is still difficult to estimate. Many factors regarding the exchange rate should be considered in the context of funding the current account deficit, CDS and, accordingly, external debt rollover, increase in reserves, and the effects of data from the US on interest rate expectations. While positive signs of the variables we have mentioned have been seen in recent days, we will focus on how sustainable it is.

Kaynak Enver Erkan / Tera Yatırım
Hibya Haber Ajansı