Page 11 - Turkey Outlook 2022

On January 29, the Fed will release the results of its next meeting.

The USD index (DXY) is still hovering in the 96s. The new year rally normally
lasts till February.

Amid the growing Fed “tapering” talk, Congress continues to chew over the
Biden administration’s expenditure packages. Various packages worth trillions
and trillions of dollars are discussed. It is hard to follow up on all of them.
Discussions over the tax hike plans continue.

The aim is to pump money via fiscal policy instead of monetary policy.
However, there is growing and visible inflation by now; it was previously
‘stored’ in the form of asset price bubbles during the longer-than-a-decade
money printing super-boom.

Via fiscal or monetary policy, the money printing must proceed; no-one will
contemplate stopping it until inflation gets totally out of control.

3.3 Inflation and monetary policy

That Inception movie feeling referred to is also present when it comes to
Turkey’s policy rates, lira and inflation.

Outlook Turkey 2021: “Our Outlook Turkey 2020 report stated: ‘Concerns are
still there over whether there will be an overshoot of monetary policy and a
renewed depreciation in the currency.’

Also from Outlook Turkey 2021: “It is not anticipated that the ongoing monetary
tightening process—backed by a further 200bp hike in the benchmark rate to
17% on December 24—will last too long either since all economic actors have
since 2016 been simply surviving on bank loans.

“Producing that much additional lira via fresh loans fuels the exchange rate.

“What we have here is a vicious circle and Turkey will remain caught in its
cycle in 2021.”

11 Turkey Outlook 2022 www.intellinews.com