EconoMonitor

The Kapali Carsi

Reading into expectations of Turkey market economists

The Central Bank of Turkey released its monthly survey of market expectations today. I am in the process of finalizing my own Turkish economy forecasts. I know, I know, 6 percent of the year is already gone, but my priority was to follow and cover the political crisis unfolding in Turkey- as world-renowned Turkish philosopher (and football coach) Fatih Terim noted, “what can I do, (pause and laugh) sometimes“… Anyway, I wanted to summarize the results- and show you you to see what I thought of the results of the survey, which is filled by market economists (I know because I used to do it in Citi Istanbul).

Inflation: The end-year inflation expectation of 7.44 percent is in line with mine (7.5 percent). But then I don’t see how come inflation suddenly falls- 12-month ahead inflation, which corresponds to January 2015, is 7.06 percent. So I think that projection will be revised upwards soon- or the respondents are expecting there won’t be any tax hikes next January, so there will be a favorable base-year effect.

Interest Rates: 12-Month Ahead 5-Year Semi-Annually Couponed Gov. Bond Rate (comp, %) is projected to be 9.76 percent, which implies a roughly (it is too late for the actual calculation) 2.7 percent ex-post real rate. That is certainly possible if things get back to normal in Turkey, but you should also remember that U.S. rates will probably be higher a year from now. So while I don’t see this projection as completely unrealistic, the risk is more to the upside than the downside. Interestingly enough, respondents see the End of The Current Month’s ISE repo and reverse repo O/N interest rate (%) at 7.41 percent. This rate is around 7 percent at the moment, and it could go as high as 7.75 percent, the Bank’s overnight lending rate. Therefore, respondents do not expect the Bank to raise this rate at the policy meeting next week- or rather they didn’t, as this survey is filled out early in the month. Business channel CNBC-e’s own survey of market economists (released a couple of days ago) as well as market signs are hinting that some are expecting a hike now. Anyway, I will have more details on that in Monday’s HDN column and the accompanying blog post. BTW, small note to the Central Banks: Guys, you said you don’t take the one-week repo rate as the policy rate is anymore, which is fine, really. But then why are you asking 5 questions on that rate, and none on the overnight lending rate, which is the closest thing to a policy rate right now???

USDTRY: Respondents expect the lira to end the year where it started, around 2.20. I guess they have no idea what will happen to the lira:)- just like everyone else.

Current Account Deficit: Respondents see the deficit at USD 55bn at year-end; I expect a figure slightly higher than USD 50bn.

Growth: The projected 3.23 percent growth is more or less the most I’d expect Turkey this year; I’d more likely go with the 2.5-3 percent range.

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