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bne IntelliNews – ISTANBUL BLOG: Central bank holds key rate as inflation gallops away

We bring you no surprises. Monetary Policy Committee of Turkey (MPC) at its last meeting on April 14 decided to maintain its key rate at 14%, the central bank announcement. The decision was made in line with market expectations.

April 4National Statistical Institute of Turkey (TUIKor TurkStat) said that the country’s official consumer price index (CPI) inflation was recorded at 61% y/y in March. The benchmark real interest rate is therefore minus 47%. Inflation galloped. In fact, reputable academics say he actually lies, ugly smile and all, at 143%. The Turkish consumer knows very well what he encounters in shops and markets.

Brent oil and commodity pricesin general, have stabilized lately, with the wavelengths of the fluctuations becoming smaller. But stabilization occurs at significantly higher prices. The FAO Food Price Index widened its March high of 159, up 34% year-on-year.

Since April 14, Brent rose 70% year on year to $108, while the Bloomberg Commodity Index (BCOM) rose 55% year-on-year to 131. The USD/Turkish lira (TRY) the pair was up 80% YoY to 14.6.

Erdogan’s Turkish regime has tried to keep the USD/TRY pair below level 15 since March 4th. It is unclear how much is flowing into the central bank’s account of the lira deposit protection system and exporters, while reserves dwindle.

In April, a limited recovery will be seen in Turkey’s trade deficit as gas bills drop and the tourist season begins.

Turkey’s 5-year credit default swaps (CDS) are hovering in the 500s while the yield on the Turkish government’s 10-year eurobonds is within 8%

On May 26, the MPC should hold its next tariffs Meet. Currently, the market expects it to once again keep the benchmark rate in line with the administration’s so-called “new economic model” “erdoganomic” in which officials fail to respond to runaway inflation. through monetary tightening and trying to boost exports to curb the current account deficit. Along this path, we are led to believe, lies economic freedom. Turks can dream of thumbing their noses at the vain machinations of global economic vultures. There is always this insignificant problem – nothing adds up in Erdoganomics.

On May 5, inflation figures for April will be released.

Turkey’s monetary policy remains totally ineffective. There is no foreign interest in Turkish newspapers.

In March, net creation of lira via loans go beyond pale again with 208 billion TRY ($14 billion), setting a new all-time high and leaving the 141 billion TRY seen in April 2020 trailing in its wake.

The regime injects the pound via commercial loans. In 2017, it first boosted commercial lending through the Credit Guarantee Fund (KGF). Since 2018, following the pound crash of that year, it has gradually introduced capital controls.

In 2020, it boosted consumer lending while enforcing loose capital controls. The lira crashed again. Now he seems set to find that commercial lending and loose capital controls also end in a money crash.

Despite the easing of monetary conditions, economic activity did not react positively. And Turkey’s big export market, Europe, has suffered its own slowdown since the start of 2022.

Ukraine was still resisting Russia’s invasion on April 14, with parts of the country turned into slaughterhouses. View live map here.

Since the Russian invasion of Ukraine launched on February 24, almost two months have passed. Much of the media has lost interest in keeping the conflict front and center. The worry is that Ukraine will become the new Syria, a country that has been a battleground since 2011.

So far, the overall impact of the war on the fortunes of the Erdogan administration is still unclear. There are about as many positives as negatives. The Turks have been hit by soaring commodity prices. Russians transport their wealth to Turkey to avoid sanctions. Some companies in Turkey are purchase cheap and discounted oil from Russia.

In global markets, the USD index (DXY) rose above the 100 level, while the yield on 10-year US Treasuries papers exceeded the level of 2.80. US performance curve returned to normal.

On April 14, the European Central Bank (ECB) kept its rates unchanged and its governor Christine Lagarde spoke again. THEIR/USD tested below level 1.08.

Lagarde is a lawyer. It wasn’t until she was appointed Governor of the ECB in 2019 that she understood what goes on inside a central bank building.

Eurozone inflation extended its record high to 7.5% year-on-year in March. Producer price inflation hit 31.4% in February.

May 4the fed’s free market Committee will announce the results of its next meeting. A rate hike is certain. Whether 25bp or 50bp is expected.

The orientations of its balance sheet reduction is also expected.

On March 16, after the Fed’s last meeting was held, Governor Jerome Powell, another lawyer, said the balance sheet reduction can start at the next meeting.

The months of May, August and November of this year could bring markets blood red due to Fed tightening.

Annual CPI inflation in the United States Pink to 8.5% in March. Expectations currently suggest that US inflation will peak in the 8% range in April and decline in May.

The world is waiting for two lawyers, convinced that inflation was transitory. They should explain how or if they expect to reverse inflation trends without a recession.

If lawyers had at least scaled back asset purchases when inflation hit last year, a smoother transition might be possible at the cost of some losses in financial markets.

The current direction of inflation and reckless policy responses suggest that the number of opinion pieces on the rising populist right in the West will increase in the period ahead.

In Turkey, the Supreme Election Commission (YSK) has announcement that all electoral councils in the country will be renewed by July 6, in accordance with recent amendments to the electoral law.

Erdogan will (indirectly) choose the heads of the provincial electoral councils. If he intends to aim for a new election as a fait accompli, the provincial electoral commissions will be ready as of July 6 for a snap ballot (by law, an election must take place no later than June 2023).

This path means opting for a tougher dictatorship, just like Alexander Lukashenko in Belarus.

Right now, the West is again openly supporting Erdogan. The masses are intimidated by war. Decision makers don’t need hidden games. If some lazy people like Turkey’s main opposition leader Kemal Kilicdaroglu or the candidate he backed in the 2018 presidential election, Muharrem Ince, turn out to be his rival for the presidency, Erdogan can also handle the backlash his home.

For Erdogan, his most serious rival is his health. Unless an ambitious and popular candidate like Istanbul Mayor Ekrem Imamoglu – who nailed Istanbul in the 2019 local elections to Erdogan’s chagrin – is nominated to stand against them. Then we could say goodbye to Erdogan, who could try his luck by fleeing somewhere abroad before landing in prison.

Turkey remains exposed to periods of turbulence in the coming period.