July year-end inflation forecast at 69.9%, rate hikes expected in the long term

In the CBRT July Market Participants Survey, the current year-end inflation expectation was 69.94%. When we look at the short-term inflation expectations; July inflation is expected to be 3.40%, August inflation is 2.88% and September inflation is 3.31%. If inflation increases in line with the expectations in these months, annual inflation in July, August and September will be 81.42%, 84.58% and 88.33%, respectively.​

Commodity prices, which were above the previous period averages with the Russia-Ukraine war, continue to put upward pressure on global inflation. The effects of oil prices and the extremely loose economic and monetary policy indicate that inflationary pressure will be felt intensely in the goods and services groups. The high price effect will continue to be seen 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. We expect inflation to be 70.1% at the end of the year and remain above the 70% path throughout the year.

According to the average inflation forecasts for the next 12 and 24 months, inflation is expected to be 40.23% and 24.27%, respectively. Thus, the average of inflation expectations for the next 12 and 24 months became 32.25%. Inflation expectation after 5 years increased from 9.83% to 10.21%.

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, 15 and 19.42% 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 July 21 meeting.

We see an increase in growth expectations for this year. The 2022 GDP expectation has been increased to 3.6%. The forecast for 2023 was 3.8% growth in the June survey period. Current account deficit expectations for 2022 from 37.01 billion dollars to 37.54 billion dollars; For 2023, it increased from $23.07 billion to $24.36 billion. Current account deficit expectations of market participants are being revised upwards rapidly due to rising energy costs and commodity prices.

Exchange rate expectations were 18.99 for the end of 2022. We see that the exchange rate expectations for the next 12 months are 20.92. The rise in year-end exchange rate expectations continued.

Kaynak Enver Erkan/ Tera Yatırım

Hibya Haber Ajansı