CBRT Stance on Inflation Diverges from Forecasts, More Non-Standard Policy Tweaks Expected

Statement Analysis:

• Similar discussion on the causes of inflation and their nature being transitory. Supply-side and ‘distorted’ exchange rate factors named the key drivers, but the promises of disinflation is notably at odds with analyst expectations for a surge to above 50% by May
• Reassessment of policy over 1H22 was reiterated, but the addition of lira stability being the focal point is new. Developments in commercial and consumer loan markets are being monitored, but the CBRT didn’t give any context on how.
• Overall, a wait and see approach from the CBRT (as expected) with forward guidance on inflation diverging from the market reality.
• We continue to expect policy to become more complicated in the coming months with more non-standard tools used instead of rate hikes.
• This should fail to address the underlying issues facing the economy: BOP crisis, lack of CBRT credibility, dollarization, and de-anchored expectations.
• The CBRT will likely be forced to make more forceful changes to policy as inflation surges towards the end of 1H22.