Page 74 - TURKRptJun19

Central bank chief Cetinkaya (left) with Erdogan
Relaying further details of its latest inflation forecast, the central bank said there was a 70% probability that inflation would be between 12.1% and 17.1% (with a mid-point of 14.6%) at end-2019. The range stood between 11.9% and 17.3% (with a mid-point of 14.6%) in the previous inflation report released in January.
Meanwhile, the regulator hiked its food inflation estimate for end-2019 to 16% from the previous 13%, while its average oil price estimate was revised up to $67.2 per barrel from $63.1. Amid Turkey’s ongoing economic difficulties, unconventional moves in its economic policy and question marks over how official data is being compiled, it is quite possible for the headline inflation estimate to remain flat while the estimates for food inflation, which has the highest weight at around 25% in the inflation basket, and the oil price rise. The central bank assumes that the recent trend in inflation—which stands just below 20%—along with tax cuts and administered prices will offset food inflation growth and the rising oil price. The gap between the recent officially portrayed trend in inflation and reality on the ground is, however, growing while it seems that the central bank expects the government to keep tax relief measures on the table and anticipates that tax hikes on some products such as tobacco and alcohol will keep not show through as an increase in inflation. If consistency is not a concern, everything is possible. The Turkish lira (TRY) has been hitting a newly installed glass ceiling, butting its head at just below the 5.97s to the USD since April 25.
Puzzling reserves volatility in spotlight. During a Q&A session with Centinkaya on April 30, attention predictably turned to the central bank’s promise to address puzzlement among investors and economists over unexplained volatility in the regulator’s international reserves amid the latest bout of TRY weakness. Cetinkaya is viewed as quite an amenable official, but critics say that his main shortcoming is that at the end of the day he is not a central banker. As tension rose during the putting of consecutive questions on the movements in the reserves—said to have been ‘enhanced’ with short-term swaps he failed to give a proper reaction, instead referring to a report to be released following the press briefing, which he said would provide detailed explanations. “I’m none the wiser,” Inan Demir, an economist at Nomura International in London, said in a note. “I’m afraid in general the market was looking for—or hoping for—clarity on net reserves, but it didn’t get that.”
Shift in policy language queried. Cetinkaya was also asked about the recent shift in the tone of the central bank’s monetary policy committee (MPC) to less hawkish language. “In the meeting, the governor clarified the CBT [Central Bank of Turkey] position following the unexpected revision in its policy guidance by dropping tightening bias in the April MPC meeting. This caused an interpretation that the move would lead to premature monetary easing. With the removal of the tightening bias the CBT sounds less hawkish in a backdrop of macro uncertainties and currency volatility with heightened risks of inflation,”
74 TURKEY Country Report June 2019 www.intellinews.com