In the CBRT June Expectation Survey, market participants' current year-end inflation expectation was 9.54%. When we look at the short-term inflation expectations; June inflation is expected to be 0.50%, July inflation is 0.47% and August inflation is expected to be 0.48%. If inflation increases in line with expectations in the months in question, annual inflation in May, June and July will be 11.92%, 10.94% and 10.52%, respectively.
The upward trend still prevails in the inflation equation. With the start of the normalization phase in the economy in June, there may be a gradual recovery in the demand component. This indicates that the weak demand effect can be replaced by the cumulative demand and the price effect. In the same period, the trends in prices should be examined along with the new supply balances, especially on the side of core goods and services. While oil prices have reached 40 USD levels again, neutralizing the cost advantage resulting from this. The stabilization of TRY has limited the pressure on foreign exchange based import costs. Despite that; The flash effect that can be seen more quickly on inflation should not be ignored in possible increases of exchange rates.
According to the average inflation estimates for 12 and 24 months later, inflation is expected to be around 9.03% and 8.38%, respectively. The average of inflation expectations for 12 and 24 months later became 8.71%.
Average cost of CBRT funding expectations for the end of the month fell to 7.76% depending on the expectations of the CBRT to continue its monetary easing cycle. Interest rate expectations in the Repo and Reverse Repo Market decreased from 8.19% to 7.88% for the end of the month. While 5-year GDDS interest rate expectations decreased from 11.40% to 10.92% for 12 months later, 10-year GDDS interest rates are expected to be 10.48% after 12 months. In the previous forecast period, this expectation was at 11.16%. The market forecasts the 1-week repo interest rate, which is the policy rate of the Central Bank, is expected to be %8, 7.83, 7.74, 7.59 and 7.48 in the current period and after 3, 6, 12, 24-month periods respectively.
Although the Central Bank does not foresee a change in the main policy of 2020, we see that the natural movement area on interest has narrowed. The fact that we are in a negative real interest position compared to the actual inflation is an element of sensitivity in terms of fund movements. In this regard, we are comparatively behind other peer emerging countries. The expected inflation level of the Central Bank is approached. In the second half of the year, the table on interest rate cuts will be shaped depending on the course of inflation and the performance of economic activity during the normalization phase. We expect the Central Bank to take more limited steps. Depending on the situation, the Bank can wait in some meetings. We expect an interest rate cut of 25 basis points in the 25 June MPC meeting.
Growth expectations are in a narrowing position due to the pandemic effect. Contraction expectations were 1.3% for 2020. There was a 1.6% contraction estimate in the previous survey period. The forecast for 2021 was formed as 4.6% growth in the June survey period. The transition to the normalization phase with June and firms becoming more operational, as well as the 4.5% growth recorded in the first quarter seemed to improve expectations for the year. Economic activity will show a U-shaped recovery and it will take time to reach pre-pandemic levels. In addition, the general fragility in investment item still continues in growth. In order to support the demand, the measures taken by the public banks through credit packages and the employment shield package to support the labor market are aimed at limiting these effects.
Source: Tera Menkul
Hibya News Agency