We are no longer surprised by the inflation rate.

Frankly, we are used to the big gap between the CBRT and MTP targets and this gap has obviously got nothing to do with the Central Bank’s supposed independence.

However, my prediction that I had made in my article last month is likely to come true.


I said, “If inflation turns out to be between 1.5% and 2% every month as of July, the year-end inflation will be around 63-65%.” Therefore, with the OVP statement, it became clearer what the target is. CPI figures also seem like they will achieve this target.


Last week, the Istanbul Chamber of Commerce (ICC) announced the inflation rate in Istanbul, reaching 100% annually, despite dropping to a lower level than the previous month. I read the statement, but I also noticed the deterioration in CPI surveys. The forecasts for 2022, which started at 38%, have been increasing to 80% since January. However, I still insist that “If monthly inflation is between 1.5% and 2% every month until the end of the year, we will have a CPI of around 65% by the end of 2022”.


This is neither a wish nor a goal. Purely mathematics. Obviously, there are several factors such as energy and food price hikes that increase inflation, but I guess TurkStat chooses the factors to include in the indices in a way to meet the target I mentioned above. So, instead of manipulating the numbers, the Institute prefers to collect rather different data than the essentially needed ones. Thus, the gap between the CPI and the cost of living grows further and further.


“Should We Expect Another Rate Cut?…”


I was expecting that Turkey’s economy officials would try to prove their “when interest rates drop, inflation follows downwards” thesis after seeing the ICC data, which were lower than last month. We would have heard bold statements such as “inflation has started to decline” if the CPI was announced between 1.5 and 2%. And that’s what happened.


Under the circumstances, obviously everyone would expect another rate cut move from the Central Bank, and it would not be a surprise to see exchange rates going up again.


The CBRT might be planning another cut, relying on Russia’s statement that it may buy up to $70 billion in yuan and other “friendly” currencies. However, it is not known by which method and mean the purchase will be made. Considering sanctions imposed on Russia, I wonder whether this purchase will be made in Russian roubles or dollars. Paying dollars to buy Turkish lira may push the exchange rates downwards, but doing the same operation with rouble will remain merely as a move that cheapens the energy bill from Russia.


The fact that this statement by Russia came at a time when Turkey’s sovereign debt rating is discussed again is quite interesting. If Turkey’s credit rating is downgraded once again, the country may enter a period of difficulty in terms of finding funds. .

And Russia obviously wants to strengthen relations in the face of this possibility. It is essential to analyse the benefits and side effects Russia’s intentions correctly.