Experts interpret the inflation report

►A RAPID RETURN TO TRY IS UNREALISTIC: TUGRUL BELLI

The Central Bank (CB) has made more realistic inflation estimations. It forecasts inflation to exceed 50% in H1 2022 and peak around 50% in line with market estimations. A decrease is expected with the base effect in Q4. Yet, the CB’s forecasts are optimistic, as market estimations hover around 30%. Mine is 33-34%. There are two factors that could lead to this increase. First, foreign exchange (FX) rate stability. TRY, which is devaluated now, will be more valuable with stable FX rates. Second is the recent acceleration in loans. If this continues, forecasts pose an upward risk. We should track loan developments in 2022. Newly implemented instruments don’t change stocks, but flow. FX rates may stabilize if flows are stopped. A rapid return to TRY is unrealistic. Monetary policy has been made non-functional. No rapid return to TRY has ever been historically observed. Can dollarization, which stands at 63%, be decreased with TRY loans and deposit accounts increase?

►THE CB EYES Q4: DR. ATILIM MURAT

The CB’s revised inflation forecasts moved upward and approached market estimations. The Bank says inflation may reach 50-55%. It’s a question of how inflation, which may reach these levels, ends 2022 at 23.2%. Domestic demand, production, employment are estimated to remain strong. The “liraization” strategy can be understood as reverse dollarization. FX-protected TRY deposit accounts (KKM) will be centralized and the flow of TRY loans to FX will be prevented. The interest rate won’t be used as a policy tool. Statements verify this.

►MONETARY POLICY TURNS TO “LIRAIZATION”: PROF. ERHAN ASLANOGLU

“Liraization” will be implemented with various guarantees and instruments, including the KKM. Dollarization or Liraization are effects. We should focus on the causes. It’s not easy to ensure permanent liraization before inflation permanently reaches the average of developed countries. The conditions to achieve TRY tendency without the KKM should be focused on. Disinflation is estimated to start in May-June and the actual decline is projected to occur in November-December. The year-end forecast is 23.2%. Although risks are specified in the report, estimations were made in line with the most optimistic scenario. It’s difficult to end 2022 at 23.2% while there is already the possibility of double-digit inflation in January.

►PRESSURES ON TRY TO INCREASE: DR. BURCU AYDIN OZUDOGRU

Although the CB’s primary objective is price stability, the primary objective of the monetary policy continues to be growth. Economy managers aim to control FX rates and inflation with financial resources. The CB’s statement about no interest rate hike and many central banks’ interest rate increase in 2022 will put pressure on TRY. Pressure on FX rates with financial resources isn’t a permanent policy instrument. Upward pressure on TRY and inflation may continue.