TR Monitor

Wishful thinking

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ended last week with strong data. But despite this, WE’VE concerns regarding the Central Bank’s interest rate decision limited their impact. The reason for the concern was President Erdogan’s statement where he said that inflation will decrease as of August, that the interest rate causes inflation, he is against these high interest rates and that the rate should be decreased.

Following this chaos, the Central Bank decided to hold the interest rates unchanged and published minutes that are similar to previous statements.

Expecting the policy rate to be 19% in a country where the inflation stands at 18.95% is like wearing a shirt on a snowy day with the expectatio­n of the sun coming up. Yes, we may see a decrease in inflation in the next few months but talking about a rate cut when we are not where we are supposed to be naturally causes concerns.

From another perspectiv­e, it’slikely that the Central Bank’s policy rate is set based on considerin­g the next inflation data, not the previous one, so we should focus on expectatio­ns rather than the existing inflation numbers. You can’t argue against this fact. The Central Bank’s inflation and market expectatio­ns for 12 months ahead are 11% and 12.5%, respective­ly. One of the most sensitive things here is how economic actors’ expectatio­ns will correspond to those of the Central Bank. Meaning if stakeholde­rs believe the goals and expectatio­ns of the Central Bank are believable or not. This is the main issue that the Central Bank and the government should focus on.

In the next few days, there won’t be important data, both domestical­ly and internatio­nally. The most important indicators of the week are building permit statistics and the June residentia­l property price index. 2021 has been very calm in terms of new house projects and sales. It is unlikely we’ll see anything different in the data to be released this week. We only see that house sales to foreigners have been increasing in recent months due to the worthless state of the lira.

On Friday morning, we will see the July newly-establishe­d and closed companies data. The industry and services sectors are experienci­ng strong performanc­e in the third quarter. With the additional impact of normalizat­ion, it’s highly likely we will see a rise in the number of newly-establishe­d companies.

The most important data from abroad is the Fed minutes, which will be announced on Wednesday night. But this may not have a transforma­tive impact on the markets.

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