In the CBRT's September Expectations Survey, market participants' current year-end inflation expectation was 11.46%. Looking at the short-term inflation expectations; September inflation is expected to be 1.07%, October inflation 1.46% and November inflation 0.65%. If inflation increases in line with the expectations in these months, annual inflation will be 11.86%, 11.26% and 11.56% in September, October and November, respectively.
Following the developments in exchange rates, the effects of the cost pressure on imported inputs and final goods on the CPI may cause the upward deviation range of inflation to widen. We expect the increased private consumption tax burden on imported goods to have an additional effect on the upward pressure on inflation. If the TRY does not gain stability, it may increase inflation pressures and similarly increase inflation expectations.
According to the average inflation forecasts for 12 and 24 months ahead, inflation is expected to realize at 10.15% and 8.86%, respectively. Thus, the average of inflation expectations for 12 and 24 months ahead became 9.51%.
The WACF expectations for the end of the month increased from 9.79% in the previous survey period to 10.58% with the effects of the tightening made by increasing the weight of the late liquidity window in the liquidity provided by the CBRT to the market and funding banks from the upper limits. Interest rate expectations in the Repo and Reverse Repo Market rose from 9.79% to 11% for the end of the month. While there is a change from 12.18% to 12.42% in the 5-year GDBS interest rate expectations for 12 months, it is expected that the 10-year GDBS interest rates will be at the level of 12.71% after 12 months. In the previous forecast period, this expectation was at the level of 12.72%. The market forecasts the 1-week repo interest rate, which is the policy rate of the Central Bank, is expected to be 8.62, 9.50, 9.64, 9.38 and 8.67 %in the current period and after 3, 6, 12, 24-month periods respectively.
We expect the CBRT to not make changes in interest rates in order to maintain the economic recovery in the pandemic dynamics and to monitor the monetary expansion programs of other central banks, but to continue to tighten the monetary policy by increasing the market funding rate and tightening liquidity. There may be the possibility of evaluating options such as to hike the policy interest rate or technically increasing the interest corridor and LLW in terms of exchange rate movement in the following months.
Growth expectations are in a contraction position due to the pandemic effect and tightening in financial conditions. Contraction expectations for 2020 were 1.5%. In the previous survey period, this estimate was 1.6% contraction. The 2021 forecast was 4.2% growth in the September survey period. In the 3Q20 period, we felt the bottom-up recovery effect of the economy, during this period, growth displayed a good outlook with the effect of economic incentives, increasing firm activities due to normalization and supporting loan growth. On the other hand, the risks of the epidemic effect in the economy and the tightening in financial conditions, demand and credit growth, which will decrease, may have a limiting effect on growth.
Exchange rate expectations were 7.60 for the end of 2020. We see that the exchange rate expectations for 12 months ahead are 7.94.
Kaynak Tera Yatırım
Hibya Haber Ajansı