Page 75 - bne magazine February 2022_20220208

bne February 2022 Southeast Europe I 75
The day also saw the central bank announce that inflation expectations
for the next 12 months have surged to 21.39% from 15.61%, according to its December survey of market participants.
Analysts will now watch for the prospect of capital controls being brought in if the lira crisis deepens from here.
Jason Tuvey at Capital Economics
said: "Today's move provides further evidence, if any were needed, that macro developments are playing little role in the CBRT's [Central Bank of the Republic of Turkey’s] policy formulation.”
He added: "The accompanying statement [from the CBRT] suggests that the easing cycle will be on pause early next year but, even so, the lira will remain under pressure and capital controls are likely."
Jakob Christensen at Danske Bank commented: “We expect that even though they are now staying on hold, the fact that inflation will be peaking further, and that the U.S. central bank is in a tightening mode, there's a bias towards a weaker lira.
"I am concerned about the inflation outlook in the next two to three months, as the sharp weakening in the lira feeds through... inflation will definitely go above 30%."
'Tolerance for lira pain'
At Scope Ratings, Dennis Shen noted that "the central bank's tolerance for lira pain certainly appears much higher this go around with Erdogan now more or less fully in charge of rates policy.
"The only thing is that even if destabilising lira devaluation is somehow being fully justified away as
Ipek Ozkardeskaya at SwissQuote Bank, said he now expected the USD/TRY to end the year within the 17-19 band.
Haluuk Burumcekci at Burumcekci Consulting said in a note: "[The central bank] at least giving the signal that it won't lower interest rates until March is a limited positive development for the Turkish lira... The central bank
“Considering inflation in Turkey will rise to 35% and more mid-next year... we think these measures will not be enough and the bank will have to raise the policy rate in the not-so-distant future"
being good for correction of the current account and raising exports, now that the lira crisis is starting to have an effect on dampening growth conditions – whether such weakening economic growth might force Erdogan to change course ahead of elections by 2023?
"If so, any 'change of course', however, may not mean a rate hike immediately even if the central bank pauses rate cuts at least over the near future, instead potentially meaning capital controls, more FX swaps with domestic banks and friendly allies, and use of reserves to support lira should lira sell-off pressures continue."
will most likely try and navigate this period by using macroprudential tools, primarily required reserves, and by resorting to direct forex sales in the market at times. In other words, without raising interest rates."
He added: "Considering inflation in Turkey will rise to 35% and more mid-next year due to the recent lira outlook, the possible minimum wage hike, significantly deteriorating inflation expectations and the global inflation backdrop we think these measures will not be enough and the bank will have to raise the policy rate in the not-so-distant future."
Erdogan, centre, seen after he made the minimum wage announcement.
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