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Tarih : 2020-07-23 16:18:00

CBRT seems to have come to the end of interest rate cuts

In line with the expectations of the market, the Central Bank kept the policy rate constant at 8.25% and continued to halt interest rate cuts after the June meeting. Since the last MPC, the Central Bank has taken a non-surprising decision as the situation continues to further deepen inflation risks and negative real interest rates, which are the basis for keeping interest rates stable.

 

The policy statement points to risks related to the current outlook, particularly the core inflation outlook. New normals that occur with the effect of the epidemic affect pricing dynamics. It is possible to say that inflation is fed both from the cost channel and from the demand channel, when the loose monetary policies and the effect of interest rate decreases to support the recovery of the economy are included. With the pandemic, interruptions in factory production and service supply increased unit costs. This effect lasts longer than the effect coming from the demand channel. Demand intensified on the private consumption side with the decrease in loan interest rates, ultimately had an upward effect on prices, especially related goods and services items. This brought the demand, which normally did not create inflation pressure during the pandemic period, to have an upward bearing effect on inflation.

 

Demand-driven effects seem difficult to spread over a long period of time. Because this demand increase is due to the ease of financing costs. The decrease in the income of the households and their ability to demand goods and services naturally during the pandemic period indicates that this demand effect will last for a short time. The base effect may also provide some withdrawal in annual inflation. However, we expect the cost pressures and at the same time, the upward trend of the final prices on the administered / guided prices and tax items to continue. The core inflation risks that are included in the policy statement and the upward risks regarding the year-end inflation forecasts can be read as a sign that the Central Bank is at the end of the interest rate cuts.

 

Factors such as the fact that we are in a negative real interest position according to the actual inflation, the bond and deposit rates are below the current inflation levels, may have implications in terms of capital movements and economic warming. In terms of real interest, it is clear that we are behind other emerging countries. In fact, this was also the case when the policy rate was at 10% levels. We expect the Central Bank to end interest rate cuts under current conditions and to revise inflation expectations upwards in the 29th July Inflation Report meeting.

Source: Tera Menkul
Hibya News Agency

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