Nothing new on the MPC front

TURKEY - In Brief 21 Jul 2022 by Murat Ucer

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The Monetary Policy Committee kept the policy rate unchanged at 14% at today’s meeting, as expected. There is almost nothing material to report, but we share a few thoughts anyway. The statement says (link here) growth has remained robust in Q2, with “stronger job growth than peers” (which is a new addition). The current account is showing a strong improvement “thanks to tourism”, though risks remain “because of elevated energy prices and heightened likelihood of recession in trade partners” (the latter is new). It notes that “[d]espite losing momentum, credit growth, and allocation of funds for real economic activity purposes are closely monitored” and repeats the mantra that “[t]he Committee will continue to implement the strengthened macroprudential policy set decisively and take additional measures when needed”, meaning we should perhaps brace for further interventions and balance sheet distortions. The statement also sticks to its misdiagnosis on inflation dynamics, which says, in a nutshell, it’s all “global” and unwarranted by fundamentals and therefore, it "expects disinflation process to start" thanks to "measures taken so far" and "the resolution of the ongoing regional conflict", without providing any timing or trajectory for it. It is needless to say perhaps, but the Bank remains too complacent on the current account/balance of payments dynamics, and of course, regarding the inflation outlook, but it has no better option under the circumstances, other than biding its time and waiting for things to miraculously work out somehow, the odds of which are close to nil, in our view. In fact, given the current monetary policy stance and the generally continuing F/X...