Cevdet Akçay, Deputy Governor of the Central Bank of the Republic of Turkey (CBRT) gave an interview to Reuters, where his key message was not to expect rate cuts from CBRT soon. Akçay said that inflation expectations are still very pessimistic. Stating that the inflation expectations of market participants, companies and households are closely monitored, Akçay said that there is pessimism in inflation expectations, especially on the household side.
Pointing out that CBRT’s monthly market participants’ expectations have converged to the year-end inflation forecast, alternative surveys which began to be compiled by the Bank only recently, revealed a completely different picture. Acknowledging that the society’s perception of inflation is still too high to be comfortable with, Akçay highlighted the message that interest rate reduction is not on the MPC’s agenda right now.
In his interview, Akçay touched upon the importance of companies’ inflation expectations for the success of the CBRT’s disinflation policy, especially with reference to the effects of companies’ inflation expectations on production and employment.
Cevdet Akçay also commented on inflation rate in July, to be announced on 3rd of August, stating that the print may exceed expectations in July. Akçay noted that MPC expects the hikes to some indirect taxes and “managed prices”, i.e. those controlled by the administration and agencies, to contribute an additional 1.5 points to monthly inflation in July.
“It was important” added Akçay, that “monthly inflation was still volatile”, stressing the importance of maintaining a tight monetary policy would be maintained until a permanent improvement was achieved in the main trend of monthly inflation. Akçay said that the prerequisite for even debating a loosening cycle in monetary policy is a significant and permanent decline in the underlying trend of monthly inflation.
Stating that the CBRT closely monitors the liquidity conditions in the market, Akçay reiterated that the main policy tools are the policy rate, but they also took the necessary steps to diversify the sterilization tools (to absorb excess TL liquidity in the market). Cevdet Akçay said that the myriad and ad-hoc banking system regulations, the hallmark of previous CBRT governor Sahap Kavcioglu and his boss economy czar Nurettin Nebati, which had effectively replaced monetary policy, have also been reduced and simplified.
Meanwhile, the results of the CBRT’s “sectoral inflation expectations survey” regarding the inflation expectations mentioned by Cevdet Akçay were announced. In July 2024, 12-month forward annual inflation expectations decreased by 1.8 points to 30.0 percent for market participants, by 1.2 points to 55.0 percent for the real sector, while inflation expectations for households increased to 72.0 percent.
The share of households expecting inflation to decrease decreased by 4.2 points compared to the previous month to reach 29.3 percent.
Several global investment banks predicted rate cuts to start before the end of the year, joined by a chorus of local experts who argued based on CBRT’s official market participants survey, ex-ante real rates will be too restrictive, when seasonal factors carry CPI from the spring peak of ca 75% to 50% by late fall.
While Dollar/TL decreased by 0.12% in reaction to Akçay’s statements, Borsa Istanbul did not react negatively to the news. BIST-100 index is showing a slight buying trend towards the close.
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