We will start the new year with the December inflation rate, which will be announced on Monday, January 4th. We predict that December inflation will increase by 0.9%. By the end of 2020, we expect annual inflation to realize at the level of 14.20%, in line with the market median.
Exchange rate transition effect was the most important reason for November inflation to increase to 14%. We think that the cumulative effect of the increase in exchange rates will continue. We understand this from the high increase rates in PPI. While the annual PPI rose to 23.1% in November, we observed an increase of 4.1% on a monthly basis. The cost impact on the producer continues, we will also see the impact of this on consumer prices. While the past exchange rate increases continue to exert inflationary pressures on prices; On the other hand, we will be watching the effects of seasonal conditions, especially on the food prices side. The pass-through factor stemming from the depreciation of the TRY, the increase in oil and commodity prices and the rapid increase in food prices due to seasonal conditions are effective in both the current rise and the additional increases that can be seen. In the first month of the new year, the effect of the prices managed and directed by the revaluation effect will be seen and the effect of the high monthly increases will continue. We will probably see a 15% level in the first half of the year.
Under these conditions, the Central Bank tightened strongly at the December meeting and positioned the policy rate at 17%. We think that the interest rates are at a sufficient level for this inflation trend and it is in a safe zone against further increases. When the policy rate of 17% is adjusted with inflation of 14%, the real interest rate, which reaches 2.6%, makes us one of the highest returns among emerging countries. If there is an additional deterioration in the general inflation trend, the Central Bank has a policy direction that can increase the interest rates. In line with the current inflation risks and trends, we expect interest rates to be at or higher than the current level for the next 6 months. The fact that inflation comes down permanently with indicators that determine the main trend will allow the Central Bank to lower the interest rates in the future.,
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