Inflation, current account deficit, reserve funds etc….

The fact that industrial production data turned out to be lower than the last year, yet better than the last month gave everyone some hope, even for just a little bit. In the meantime, government’s “we except a sharp fall in inflation” statement did not go unnoticed.

Obviously, I received a lot of questions following the press release mentioned above. The situation, however, doesn’t seem very promising when we consider “base effect”, especially in terms of CPI; because inflation has been rising since June last year and it has already hit 17.5% in 11 months. If May inflation (around 0.5%) within the general trend of previous years was released, annual inflation would hit around 18%.

Any rate lower than the one mentioned above would be quite confusing to all as we did not witness any fall neither in agricultural product prices nor exchange rates. If inflation rate turns out to be lower or negative than expected in June and July, it may help us achieve our year-end target. But, exchange rate rises should be taken into account as well.

When I say, “Sharp fall in inflation”, I mean a fall around 2 to 3 points. Therefore, even though inflation rate would fall by 1 or 1.5 points, it would neither provide enough reason to the CBRT for a rate cut nor help to ease markets’ concerns. Any significant fall in inflation is obviously what we need right now, but what we need more is that these figures should seem convincing enough.

“What’s with these reserve funds?”

It’s quite normal that current account deficit falls while there’s an economic shrinkage; however, Turkey should consider itself very lucky that energy prices still remain stable. Otherwise, we would be facing both economic slowdown and current account deficit simultaneously.

Recent news about the possibility that the CBRT may sell its reserve funds to the public has unfortunately led to devastating rumors about the budget discipline. Following a television show I appeared on yesterday, key government officials from Ankara have personally called me to declare that “It’s all a whole bunch of lies!”

I honestly don’t know who spread all those rumors but I must say that they blew it up. Given the fact that the CBRT’s extraordinary general assembly has unanimously decided to sell central bank profit to the public, and while there are a lot of debates going on about the net reserves, now these rumors seem like the cherry on top.

This whole reserve situation should not be taken so lightly. If these news are indeed ‘made up’; those who spread these rumors must be warned as soon as possible. But if this is happening because someone ordered some people to do so as precaution, then we should take a different perspective on this issue

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