CBRT Economist Meeting: The effect of monetary policy to be seen in 1H22
Speaking at the economist presentation meeting organized by the CBRT, Governor Mr. Şahap Kavcıoğlu said that companies’ appetite for investment …
Speaking at the economist presentation meeting organized by the CBRT, Governor Mr. Şahap Kavcıoğlu said that companies’ appetite for investment and job creation has increased. The governor said inflation will slow as temporary factors end. Stating that the central bank does not want “extreme” exchange rate volatility and can intervene when necessary, Kavcıoğlu added that the effect of monetary policy will be seen in the first half of 2022.
The topics covered in the presentation and our own comments on them;
· With the elimination of temporary factors, inflation will slow down.
· The central bank will continue to accumulate foreign exchange reserves resolutely.
· The central bank does not want “extreme” exchange rate volatility and can intervene in such situations.
· Unrealistic and unhealthy prices are seen in the foreign exchange market.
· The impact of monetary policy will be seen in 1H 2022.
· The appetite for investments and job creation from companies is increasing.
· A significant portion of the foreign currency deposits in Turkish banks were converted to lira, but the central bank is “disturbed” with an amount moved to cryptocurrencies (Kavcıoğlu did not specify the amount transferred to cryptocurrencies).
In the light of these quotations; We see a Central Bank that expects inflation to decrease in the coming period within the framework of temporary factors, and accordingly believes that real deposit rates will turn positive. On the other hand; It is understood from the statements of Kavcıoğlu, who also stated that the limited area was used to a large extent in terms of discounts in interest rates, that the discounts were made in a front-loaded manner. This reveals that the Central Bank may wait for a certain period after the December MPC. Considering that similar problems with inflation will be experienced in 1H22, it may be necessary to observe the additional effects of current price increases and volatility factors. However, the general stance of monetary policy is in a loosening trend and We also think that it will move forward in line with the new economic perspective pointed out by President Mr. Recep Tayyip Erdoğan. New economic perspective; It aims at an economic outlook with a current account surplus and high growth with the increase in exports and employment. For this reason, the government’s desire to reduce interest rates is in question.
Thinking that the current price increases are temporary and will not turn into inflation, the Central Bank also thinks that the recent volatility in exchange rates is not based on economic fundamentals and will settle on its own accord. Accordingly, if there is a Central Bank that cannot derive inflation from exchange rate volatility, it will not be answered by the main policy instruments. As known; The Central Bank intervened in the exchange rate after 7 years. It has been stated that these interventions aim to intervene in the volatility, but also to support the liquidity of the market. We think that even if the rate is to be intervened especially through the salable reserve assets, this should be supported by the discourse and action path of the policy and the main factors that push the rates up should be eliminated.
In this framework, it is clear that the activity regarding the credit mechanism is desired to remain at the point of commercial credits. On the other hand, we think that negative real rates in an economy that will be devoid of the effect of high interest rates will not be positive and effective in terms of lira savings in general. In FX deposit changes, it is necessary to look at the event through money rotation and system inputs and outputs. In other words, if the FX – TRY rotation is missing, there may be a certain amount of money in the financial system shifting under the crypto money or under the pillow.
We see that the Central Bank’s desire to cut interest rates will continue, but with the reductions made after September, it has used the available space to a large extent. In this framework, it may be possible to wait for a certain period after making a final reduction at the 16 December meeting.
Kaynak Tera Yatırım-Enver Erkan
