Türkiye: Higher inflation for longer, dovish monetary policy – Standard Chartered

Economists at Standard Chartered raise their inflation forecasts on higher realised inflation, continuing pressure on the Turkish lira (TRY) and elevated short and medium-term inflation expectations – however, they expect the Central Bank of the Republic of Turkey (CBRT) to ease policy further, as it looks to support growth amid rising global and domestic headwinds. 

More rate cuts, despite higher inflation

“We raise our 2022 CPI inflation forecast (annual average) to 72% from 65%. We expect inflation to remain high due to higher short and medium-term inflation expectations and the lagged impact of continuing currency weakness. We also raise our 2023 and 2024 inflation forecasts to 40.0% (30% prior) and 15.0% (9%), as we expect expansionary monetary policy to keep inflation higher for longer.”

“We now expect the CBRT to cut the one-week repo rate by another 300 bps by end-2022 to 10.0%. Our base case is no change in the policy rate at the September meeting, as the central bank might adopt a ‘wait and see’ approach after last month’s cut and amid challenging global financial conditions. However, we do not rule out another rate cut.” 

“A likely slowdown in economic activity in H2 is likely to convince the central bank to provide further monetary stimulus through rate cuts in Q4. The CBRT’s monetary policy stance is likely to remain tilted towards growth for the rest of 2022 and in H1-2023.”