Tightening bias

Yarkin Cebec , economist, JP Morgan

The Central Bank of Turkey has re nforced our v ew that monetary eas ng s off the table at least unt l the last quarter of 2018. Though not our base-case, the bank sounds closer to the dea of further monetary t ghten ng n case the l ra underperforms in a si gn fi cant way, jeopard z ng the bank’s cred b l ty n the com ng months. W th such references on ups de r sks and poss ble bank act ons, t s clear that the bank now has a t ghten ng b as. Turkey’s nflat on dynam cs have ndeed worsened n recent months. The l ra has lost nearly 10% of ts value aga nst the US$+euro basket and th s by tself w ll push nflat on up by more than 1 percentage po nt n the next 6-9 months. Strong domest c demand, h gher energy pr ces and worsen ng nflat on expectat ons have been the other factors respons ble for the strengthen ng n pr ce pressures. As a result of these factors and follow ng the ups de rev s on n the JP Morgan o l pr ce forecast n part cular, we have also rev sed up our nflat on forecasts. We now see end-2017 nflat on at 10.2% (prev ously 9.7%) and the end-2018 forecast s rev sed up to 8.2% from 7.6%. We see nflat on peak ng at 12% n November before rap dly fall ng n the December-March per od. Thanks to a strong base, nflat on w ll l kely go down to 8.6% at the end of 1Q18. (Nov. 1)