People View Things Through Their Own Lens of Needs
This week marks two important dates: the updating of Turkey’s credit rating by Moody’s and the meeting of Turkish Central Bank Governor with investors abroad, in which Minister Şimşek decided not to attend at the last minute. These are important details of the agenda, but there are other important developments as well.
As Houthi attacks in the Red Sea continue to affect trade routes, the Maersk Hangzhou container ship has recently announced that it will suspend all vessels bound for the Red Sea and the Gulf of Aden, which will obviously cause shipping time to take longer and prices to go up.
Lately, freight shipping has been taking too long not only overseas but also by land and rail. These delays will unfortunately result in greater costs for the global economy, which is already on a knife-edge. The biggest cost would be to households, including further increase in inflation. We will see whether the Fed and the ECB’s tendency not to hike rates will change in the face of globally rising prices.
Since 85% of Turkey’s exports consists of consumer goods, making Turkish economy highly vulnerable to price spikes, the government has to be ready to offer adequate financial support to freight operators. And as 90% of Turkish imports consist of intermediate goods, essential for production, it is clear that more additional customs duties will put upward pressure on the CPI.
Considering all these risks, we could conclude that there are several obstacles bound to slow down inflation throughout the year. Accordingly, we will wait for the fourth quarter of the year to see interest rates reduced. And we should also not ignore the possibility that the CBRT might hike rates before April. But my advice to you is to stay alert for any premature rate cut, just in case.
