What Should We Know Before the CBRT Meeting?

What should we know before the CBRT meeting? The Central Bank will announce its interest rate decision today.

Domestic markets are waiting for the MPC meeting of the Central Bank of the Republic of Turkey (CBRT) today. The Monetary Policy Committee will meet today at 2 pm. So, what should we know before the CBRT's meeting today? What decision is expected from the CBRT? Chairman of the Central Bank of the Republic of Turkey Naci Ağbal had taken quick steps in order to recover the economy from the first day he took office. Since Ağbal took office, the policy rate has been increased by 6.75 basis points in total, in the last meeting it was raised to 17 percent. However, the markets expect the interest to remain constant, not an increase in interest rates from the first MPC meeting of 2021.   Economists Think Interest Rate Will Be Fixed Economists think that CBRT will not increase interest rates at the first meeting. In the survey conducted by the Bloomberg HT Research Unit with the participation of 22 institutions, the median expectation is that the policy rate will remain constant at the meeting on January 21st. In the aforementioned survey, 3 institutions estimate that the policy rate will be increased by 50 basis points to 17.5 percent, and 5 institutions by 100 basis points to 18 percent. Besides domestic economists, foreign economists also support the view that the CBRT will keep the interest rate stable. Tatha Ghose, Senior Economist at Commerzbank Emerging Markets, expressed that he does not expect the Central Bank to change interest rates. Rabobank Emerging Markets Senior Currency Strategist Piotr Matys stated that the most usual scenario is to keep the policy rate constant at 17 percent, adding that the possibility of a moderate rate hike cannot be completely ruled out. In addition, Morgan Stanley economists anticipate an increase of 100 basis points at the Monetary Policy Committee meeting on January 21st. The bank's report, signed by Georgi Deyanov, Andrea Masia and Alina Slyusarchuk, shows core inflation in December and the rise in producer prices in November as a basis for the interest rate hike expectation.   Latest Inflation Data Was Above Expectations In December, inflation data was above expectations. In December, according to data released by Turkish Statistical Institute (TURKSTAT), the consumer price index compared to the same period of the previous year by 14.6 percent, increased 1.25 percent compared to the previous month. Economists expected this rate to be 14.2 percent.   President Erdoğan Criticized Interest Rates President Recep Tayyip Erdoğan criticized the high interest rates; He said the following on the subject: “Price stability is our main goal. We reduced inflation from around 30 percent to single households. I am against high interest, I say this by excluding what we experienced. Banks look at their profits, the interest burden crushes the investor. We need investment, employment, production and exports.”   Erdogan continued his statements on the interest rate as follows: “Right now, we have investors and entrepreneurs in front of us, I know how many of you are crushed under the burden of interest. I know how these banks are exploiting you. When we are talking about making Turkey a haven for interest, on the other hand, our banks talk about how much profit both the public and private sector have made. I need investment, employment, production, export. If these four titles are missing, then we have nothing. Let's look at the world right now. What is the interest rate in the USA? Let's look at the situation in Japan? Negative. Let's look at Europe; one or two. Israel, negative. While all this is obvious, we are proud of high interest rates. There is one thing I believe in; we cannot get anywhere with high interest. We will do the work of how we pay the debt with our own resources, not by providing ourselves from outside with high interest, there will be no other way out. The main job is to lower inflation by lowering interest rates.”   Chairman of the CBRT Ağbal Emphasized Price Stability Naci Ağbal, who took office in November, raised the policy interest rate by 4.75 points at the first meeting and by 2 points at the second meeting to 17 percent. In addition, Ağbal emphasized on price stability in every speech and underlined that price stability will be given priority the day after the December meeting. In his presentation at the TBMM Plan and Budget Committee, Ağbal said the following: “The positive relationship between price stability and stable and rapid growth stems from the improvement of business and investment environment by ensuring predictability in the economy. Price stability constitutes the most important measure of economic stability and long-term prosperity. Central banks make the greatest contribution to social welfare increase by providing price stability. CBRT will decisively implement the inflation targeting regime. Monetary policy decisions will be taken with the priority of price stability.”     This article has contributions of Bloomberg HT.