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Barclays Forecast CPI at 43% y/y in May

TURKEY
  • Despite the base-effect-related drop in headline inflation and the stable TRY since the summer, sub-segments of services CPI keep trending up. This not only signals a broad-based deterioration in pricing behaviour but reflect both higher and accumulated production costs.
  • Barclays expect CPI to continue to trend downwards until the elections with the help of a high base effect and a stable TRY. At the time of elections in May, they forecast CPI at 43% y/y. After the elections, the trend will primarily depend on the result.
  • But in a scenario of strong lending growth in the months leading to the elections, Barclays would expect a reversal in the downward trend in CPI, irrespective of TRY moves.
  • TRY will need to adjust in the post-election environment. However, given local elections in March 2024, neither the current government nor the opposition will be willing to allow a major correction, in Barclays’ view.
  • Barclays expect the policy rate to be kept stable at 9% until the elections. However, dovish tweaks in the MPC statement in January and President Erdogan's recent remarks calling for further cuts do pose downside risks. If the current government remains in power, Barclays do not expect a change in policy rates. However, if the opposition wins, they expect policy rates to be raised to c.25%.
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