CBRT IS UNLIKELY TO LOOSEN ITS MONETARY POLICY
While the risks in the inflation outlook look all but set to rise due to the significant depreciation in the TRY, inflationary pressures have forced the Central Bank to go to monetary tightening with the revival of growth in 2017. Fiscal policy, which has been looser than the previous years due to temporary tax cuts, incentives and measures for increasing employment also plays a role in this. As a result, the Late Liquidity Window interest rate, which is the ceiling value of the interest rate corridor started at 10 percent and completed the year at 12.75 percent while the average cost of funding rose more sharply from 8.3 percent to 12.75 percent. The headline inflation, which was 12.98 percent at the end of November due to the favorable base effect created by high inflation events in 2016, has a potential to decline by 3 points from December 2017 to April 2018. The course of the TRY will play a role in this, mainly its effects on unprocessed food prices, public price adjustments and whether there will be a slowdown in growth or not. In this direction, if the CBRT does not see a new depreciation in the TRY, it may be expected to try to avoid the process without increasing the interest rate. As the 7 percent year-end inflation forecast is already above the mediumterm inflation target, it is unlikely that the bank will loosen its monetary policy unless the inflation trend slows significantly.