Page 25 - TURKRptDec20

Old Turkish lira entrance prices given as one million and two million lira. Six zeroes were dropped from the assailed currency in 2005.
The previous central bank governor on October 28 released an end-2020 inflation forecast of 12.1% after the previous finance minister on September 29 released a 2020 inflation target of 10.5% in his economy programme.
However, following the rate hike, we, and especially those who have already bought all the “right noises”, can be invited by officials to imagine a scenario in which there is a sharp adjustment in demand due to the monetary tightening.
Although we are not dealing here with realities but with the discourse produced to drive the market, people in the real economy should remind themselves that inflation in Turkey is not driven by demand. It is cost side inflation and it is sticky​.
When the exchange rate depreciates, the effect passes into consumer prices via rising costs in what is an import-dependent economy. When the exchange rate recovers, prices are not adjusted downwards since everyone knows that the lira will depreciate again sooner or later.
Manufacturers have ramped up their raw material and intermediary goods imports in recent months due to concerns over rising import prices. According to the theory spread by officials, these firms will cut their prices now following the rate hike.
There is also talk of “​fiscal policies that complement monetary policy​”. Turkey has been claiming increases in its tax income across recent months amid the pandemic and lockdowns. It can release even higher increases in the coming months.
If we choose to take everything being said right now by the Erdogan administration about the economic data as entirely correct, what do we see? We see that Turkey’s official CPI index is shaping to deliver the desired journey into single digits from as early as November.
The national statistical institute TUIK delivered a November 2019 inflation rate of 0.38% m/m.
If on December 3 it announces half of that, or 0.19%, for November 2020 thanks to “demand adjustment following the rate hike”, annual inflation could fall to 11.68% from 11.89% in October.
If the halving strategy continues in the following months, single-digit inflation will arrive in March.
25​ TURKEY Country Report​ December 2020 ​ ​www.intellinews.com