CBRT points to long-term disinflation with a medium-term perspective

At the 1st Inflation Report meeting of the year, the CBRT did not change its year-end inflation expectation and repeated it as 9.4%.

At the 1st Inflation Report meeting of the year, the CBRT did not change its year-end inflation expectation and repeated it as 9.4%. While the year-end food inflation forecast was increased from 10.5% to 11.5%; the Bank set its 2022 food inflation forecast as 7%. The Central Bank predicts the 2021 average Brent oil price as 54.4 USD. In the previous forecast period, the oil price assumption was determined as 43.8 USD.


While creating inflation expectations for the end of 2021, an update in TRY import prices was -0.4 points, an update in the assumption of food inflation in 2021 +0.2 points, an update due to administered / directed price adjustments was -0.3 points, an increase in real unit labor costs was +1 point and The decrease in inflation expectations had an effect of -0.5 points. Within the framework of these assumptions, it is anticipated that the cost effect from the exchange rate will diminish in the coming months, and the risks related to food inflation (especially processed food) will remain high.


As it will be remembered, the Central Bank did not increase interest rates in its last MPC; it maintained its strong guidance that it closely monitors inflation risks. In this context, the statements that the tight monetary policy stance will be maintained for a long time and that additional tightening may be applied if necessary were included in the policy statement. In his speech today, we see that Mr. Ağbal emphasizes this long-term stance once again and put forward a medium-term goal-oriented perspective. This means that; The Central Bank will not operate a response mechanism depending on instant and short-term developments. It will adopt a progressive policy base in its initial planning, with a focus on medium-term goals. This reduces the risk in terms of an early period loosening cycle. Consequently, the permanence of the adopted policy base in terms of applicability takes the most important place in the credibility facility. Interest rates will of course decline as inflation decreases, but will continue to be high enough to keep inflation falling towards the main target. The reason why the current policy rate is 17%, perhaps one step higher, is the high inflation and the risks it carries.


The reform cycle in the economy should also help with the coordinated policy base in achieving the Central Bank's inflation targets. The reform agenda, which will be announced in February, remains in a critical position. There are also policies that economic management should implement in specific areas, especially in terms of industry and agricultural production. Because the way to reduce our inflation is not only to increase the supply, but also to solve the “imported input” problem, which is the most important factor that creates chronic fragility. Localization and import substitution policies are important. Since all the elements of the sub-cluster are also included by the super-cluster, elements such as reforms in areas such as education, justice system, and financial discipline to be provided to a certain extent will be important.


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