WHAT TO EXPECT IN FEBRUARY?

WHICH WAY WILL EXCHANGE RATES GO?

FEBRUARY INFLATION, which will be announced at the beginning of March, will also be high. If there is no sharp upward movement in the exchange rate, we can see higher but more moderate figures as of March. Every rise in the exchange rate pushes prices up. For this reason, it would be beneficial if the Central Bank and government determined their action plan given the coming tightening by the Fed and shared it with the public.

January was calmer for TRY after the sharp fluctuation in November and December. In the first month of 2022, which we started 13.20, USD/TRY approached 14.00, and then returned to initial levels after the announcement of the inflation data. The fixed interest rate decision by the Monetary Policy Committee did not have a significant impact on the exchange rate.

There are three factors that we should expect to have the most impact on the exchange rate in February. 1- January inflation to be announced on February 3

2- Interest rate decision to be made on February 17

3- Statements made by President Recep Tayyip Erdogan and relevant ministers

Since the Fed will not hold an interest rate meeting in February, speeches on inflation and monetary policy from the US will also have an impact on the market.

Critical levels for the USD/TRY rate are 13.00 and 14.00 The TRY 14 level was not exceeded in January, although we got close many times. Crossing this level may accelerate upward movement in the rate, while falling below 13.00 may accelerate downward movement. However, there is currently no economic or political development that will accelerate the downward movement of the exchange rate.

HOW LONG WILL THE ENERGY SHORTAGE LAST?

ENERGY demand in Turkey continues to rise rapidly as a result of extreme cold weather and increasing industrial production. The current natural gas supply could not meet demand after Iran announced on January 20 that it would cut the gas it supplies to Turkey. The Petroleum Pipeline Cooperation (BOTAS) began to make cuts in the gas it supplies to power plants and large industrial facilities. Production slowed down or stopped in many sectors, especially in glass, ceramics, automotive, dairy and food. We will see the effects of this on industrial production and export figures in January and February. At the end of January, the Ministry of Energy announced that power cuts are over and the gas reduction rate will be pulled down to 20%. Experts expect the problem will be resolved by mid-February. We have seen this supply

shortage, again originating from Iran, in previous years. This time, however, the situation appears to be on a slightly larger scale. This current experience has shown that the Ministry of Energy and BOTAS should develop a special emergency plan for such situations.

LAST QUARTER GROWTH MAY FALL TO 3%

THE TURKISH STATISTICAL INSTITUTE (TURKSTAT) will publish growth data on February 28. Growth was 7.4%, 22% and 7.4%, in the first three quarters of the year, respectively. We expect growth to be around 3% in the last quarter.

The World Bank’s 2021 growth forecast for Turkey is 9.5%. The forecast is 2% for 2022 and 3% for 2023. OECD, on the other hand, expects Turkey to grow by 9% in 2021, 3.3% in 2022 and 3.9% in 2023.

Although 2021 will be a very volatile and pessimistic year for markets, the real sector, and households, economic growth in Turkey will be higher than many other countries once numbers are released. However, it is difficult to say the same for 2022. In particular, the monetary tightening of major economies poses a risk to Turkey’s growth for this year. The main dynamics of growth will be determined by domestic steps, rather than global conjuncture.

CLARITY NEEDED IN THE MONETARY POLICY

WE DO NOT KNOW what work is being done behind closed doors, but there is no concrete data on what the Central Bank has been doing to fight against inflation for a while. Expectations could be better managed if the bank explained what the target is, whether the fight against inflation is a priority, and which methods will be used to achieve the target. Past experience shows that the ambiguity in monetary policy results in both inflation and high exchange rates.