Latest on interest rate and inflation expectations

Eyes in domestic markets have turned to the Central Bank of the Republic of Turkey (TCMB) Monetary Policy Committee (PPK) meeting to be held on Thursday, March 6. Additionally, February inflation data is also on the investors' agenda. Economists anticipate that the TCMB's interest rate decision will lower the policy rate to 42.5 percent with a 250 basis point cut.

EXPECTATIONS REGARDING THE INTEREST RATE DECISION

All 20 economists participating in the TCMB Interest Rate Expectation Survey organized by AA Finans predict that the interest rate cut at the PPK meeting on March 6 will be 250 basis points. With this cut, the policy rate is expected to be lowered to 42.5 percent. The median year-end interest rate forecast by economists stands at 30 percent.

Morgan Stanley, one of the leading US investment banks, expects a 250 basis point interest rate cut from the TCMB and estimates that the policy rate will decline to 30.5 percent by the end of the year. JPMorgan, the largest bank in the US, predicts that the TCMB will make 250 basis point interest rate cuts in both March and April.

INFLATION EXPECTATIONS REVISED DOWNWARD

Economists have also made revisions for the February inflation data. The reduction of patient co-payments in public health institutions has had a downward effect on February inflation expectations. In January, the increase in patient co-payments at state and university hospitals had created a 0.5 percentage point upward effect on annual inflation. However, with the regulation made over the weekend, patient co-payments were reduced.

Following this change, economists predict that February inflation will be 0.4-0.8 percentage points lower than previous estimates. QNB Financial Institutions lowered its February CPI inflation forecast from 3.6 percent to 3 percent. Professor İbrahim Ünalmış from Bahçeşehir University stated that the change could lower February inflation forecasts by up to 1 percentage point and revised his estimates to between 2.9 percent and 3.1 percent.

Among the economists speaking to Reuters, the lowest forecast for February is at the 2.8 percent level.

DETAILS OF INFLATION EXPECTATIONS

According to the expectation survey regarding the February inflation data to be announced by the Turkish Statistical Institute (TÜİK) on March 3, the average of the 20 economists' forecasts was 2.97 percent. Economists expect inflation in February to materialize between 2.30 percent and 3.40 percent.

According to these forecasts, annual inflation, which was 42.12 percent in January, is projected to decline to the 40 percent level in February. The Consumer Price Index (CPI) had recorded a 5.03 percent increase in January compared to the previous month.

In the new week, other important data to be followed by the domestic economy include inflation to be announced on Monday, the domestic Producer Price Index (PPI), the manufacturing sector PMI, the banking sector net profit, the real effective exchange rate to be announced on Tuesday, the TCMB interest rate decision on Thursday, and the market participants survey and treasury cash balance data on Friday.

News Source: 12punto