CBRT: Inflation expectations keep risks alive

The Central Bank (CBRT) published the summary of the Monetary Policy Committee (PPK) meeting, in which it increased the policy rate by 500 basis points to 30 percent.

The MPC meeting summary stated that “inflation exceeded expectations in July and August” and that the monetary tightening process would continue until a significant improvement in the inflation outlook was achieved.

The statement included the following statements about the reasons for the increase in inflation:

“In addition to the effects of tax and price adjustments managed from July, the depreciation of the Turkish lira and the lagged effects of wage increases, rising global energy prices and price rigidities were effective. of the services. “The high fuel price levels achieved as a result of frequent price updates had an additional impact on rising inflation through direct and indirect channels and contributed to the overall spread of price increases.”

Mentioning that the SCT regulation increased fuel prices, the statement said: “Together with international crude oil prices and the evolution of the exchange rate, the SCT regulation has caused a sharp increase in fuel prices. “In addition to its direct effect, the increase in fuel prices also negatively affects consumer inflation indirectly through transportation costs.”

‘INFLATION EXPECTATIONS KEEP RISKS ALIVE’

The summary highlighted that leading indicators indicate that the high price increases observed in the last two months will slow, and stated that “The current course of inflation expectations and the deterioration in price behavior maintain the risks “inflation prospects are alive”.

The report stated that inflation expectations have increased and highlighted the following:

According to the results of the September Market Participants Survey, inflation expectations for the next twelve months increased by 2.93 points, from 42.01 percent to 44.94 percent; Inflation expectations for the next twenty-four months increased by 1.33 points, from 22.54 percent to 23.87 percent; Inflation expectations for the next five years were revised downward by 0.39 points, from 10.42 percent to 10.03 percent.

INTEREST INCREASE MESSAGE

The monetary policy section of the meeting summary stated that interest rates would continue to rise until the inflation target was reached and included the following statements:

* The policy rate will be determined to provide monetary and financial conditions that reduce the main trend of inflation and achieve the goal of 5 percent in the medium term. Considering the inflation outlook and upside risks, the Board assessed that the capacity of the monetary policy framework to achieve the 5 percent inflation target must be strengthened.

* Attention was also drawn to the risks that the deterioration of price stability may pose for macroeconomic stability and especially for financial stability. Monetary tightening will be gradually strengthened when and to the extent necessary until a significant improvement in the inflation outlook is achieved.

SIMPLIFICATION AND TIGHTENING WILL CONTINUE

* The Board is streamlining the existing micro- and macro-prudential framework in a manner that increases the functionality of market mechanisms and strengthens macro-financial stability. Simplification measures will continue gradually and, in this process, the speed and sequence of the transformation will continue to be determined by impact analyses.

* In this context, regulations to increase the proportion of deposits in Turkish lira strengthen the monetary transmission mechanism. In addition to raising interest rates, the Board will continue to make selective credit and quantitative tightening decisions that will support the monetary tightening process.