Will Central Bank cut rates?

I’ll get straight to the point: It’s now almost definite that inflation rate will swiftly drop in September due to the basis effect. As June inflation rate has turned out as expected, CBRT must feel ready for a rate cut.

Besides, this development has been bought already. Maybe investors read too much into the G-20 Summit, but inflation rates just saved the situation. If rates show a rather calmer trend in July-August-September period as well, annual inflation rate will rapidly fall thanks to the basis effect as I’ve just mentioned above.

I know some of you will say, “The inflation that affects me is much greater than that” but we should not confuse high cost of living and high inflation. It’s true that we’re having difficulties when we’re trying to earn a living; however, inflation rate is calculated using a very different method, which means we can always be exposed to high cost of living even though inflation rate is too low. Europe and Japan are only a few examples.

Let’s get back to the point: current inflation rates combined with positive expectations provide the necessary conditions for a rate cut.

“Complications in international arena…”

The fact that U.S. Vice President Mike Pence abruptly cancelled a trip to New Hampshire on Tuesday night and went to White House instead caused alarm. Although Vice President’s spokeswoman said, “Something came up that required the @VP to remain in Washington, DC. It’s no cause for alarm. He looks forward to rescheduling the trip to New Hampshire very soon” on Twitter, no clear or detailed explanation was released about the reason why Pence cancelled his trip.

In the meantime, Russia’s President Vladimir Putin cancelled a scheduled appearance and summoned Defence Minister to Kremlin. “A fire on one of the Russian navy’s deep-sea submersibles killed 14 sailors” Russian officials said.

Things got even more complicated when international arena was hit with some other news: Members of the EU Security Council were called for an urgent session. At first, everyone thought that it must be about the US army’s operation against Iran. But, as hours went by, things have finally calmed down. Meanwhile, people were bombarding me with questions on WhatsApp. Avoiding any speculation, I told them to it would be best not to overly scrutinize this issue.

However, all these recent events that transpired almost simultaneously proved that everyone expects a large-scale international conflict. According to majority of people, the U.S. will attack Iran, which would one of the major turning points in world history, causing sharp rises in Oil and Gold prices. Having foreseen the risk, I’m sure some of the investors have already taken position.

“Increasing interest in Turkish assets…”

On the other hand, it looks like Turkish assets’ appreciation appreciated following the G-20 Summit stimulated the International Financial Institutions. Stating that it would be better to stay in Turkish positions for a little while more, these institutions gave green light to BIST and debt securities. There are rumours that, grabbing this opportunity, the Treasury might hold a bill auction. I think it’s the rational thing to do. It would a shame to lose such an opportunity.

In short, if any globally or domestically negative developments does not arise, this positive atmosphere would last for a little while more.

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