Page 7 - TURKRptJul22

The spread between Italy 10-year and Germany 10-year papers surpassed the 200bp-level.
Europe’s usual suspects can again end up bankrupted even if the ECB takes some imprudent steps. The ECB is again in the midst of its autochthonic dilemma.
Plus, there is inflation now. The EU is getting ready for some more tension and the ECB may welcome a new governor in the coming period.
On June 15, the ECB held an emergency meeting. It said that it would continue buying the usual suspects’ government papers.
The ECB’s main policy rate (Euro area deposit facility rate) has been in negative territory since 2014. The last time when the ECB attempted to hike its policy rate was in 2011. Greece, Ireland, Spain, Cyprus and Portugal, as a result, bankrupted.
Inflation in the Euro Area extended its record-breaking series to an eighth consecutive month with 8.6% y/y in June. Producer price inflation declined to 36.3% y/y in May from a record high of 37.2% y/y in April.
Federal Reserve
In December, the Fed governors expected the delivery of three rate hikes (3 x 25bp) in 2022 that would bring the policy rate up to 0.75-1.00% from 0.00-0.25%.
March: Hiked 25bp to 0.25-0.50%. Anticipated the delivery of 6 more rate hikes in the remainder of 2022 to bring the policy rate to 1.75-2.00%.
May: Hiked 50bp to 0.75-1.00%. Began reducing its balance sheet as of June 1, with a monthly cap of $47.5bn by September and $95bn starting from September.
At his press conference held on May 4, Fed governor Jerome Powell ruled out 75bp hikes.
On June 15, the Fed hiked its policy rate by 75bp to 1.50-1.75%.
It went beyond its guidance, preferring to create uncertainty. It showed that it is earnest in its intention in hitting prices of financial assets.
Additionally, updated projections from the US state central bank governors were released.
Accordingly, they now expect to deliver seven more rate hikes in the remaining four meetings of 2022 (July 27, September 21, November 2, December 14). That would bring the policy rate to 3.25-3.50%.
On July 26, the Fed’s open market committee is currently expected to deliver another 75bp rate hike following its next meeting.
Annual CPI inflation in the US rose from 8.3% in April to 8.6% in May. As of July 4, average gasoline price in the US was up 43% y/y to $4.81 per gallon (Record: $5.02 on June 14).
7 TURKEY Country Report July 2022 www.intellinews.com