The MPC pauses, as expected

TURKEY - In Brief 20 Jan 2022 by Murat Ucer

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The Monetary Policy Committee/CBRT kept the policy rate unchanged at 14% today, as expected, and as the Bank itself had signaled earlier. The statement continues to cast inflation largely as a transitory affair, related, most notably, to unhealthy pricing behavior in the F/X market -- which needs no comment, we presume, as to how preposterous this diagnosis is.In addition, there is now a new sentence that reads:“The Committee expects disinflation process to start on the back of measures taken for sustainable price and financial stability along with the decline in inflation owing to the base effect” (which, parenthetically, is followed up by a non sequitur: “Accordingly, the Committee has decided to keep the policy rate unchanged.”) And a new phrase (marked in bold):“While cumulative impact of the recent policy decisions is being monitored, to create a foundation for sustainable price stability, the comprehensive review of the policy framework is being conducted with the aim of prioritizing Turkish lira in all policy tools of the CBRT.”As per the sentence above, the CBRT seems to be saying that inflation will start falling because of recent actions and base effects, but this is just wishful thinking because recent actions (e.g., deposit scheme) will certainly not suffice for proper disinflation under the circumstances, while base effects – if any left by then -- will not be felt until December 2022 (which, bear with us, but made us think of this classic song here.)The phrase “with the aim of prioritizing Turkish lira in all policy tools of the CBRT” is very cryptic, but it probably means Ankara is working on a few more rabbits to pull out of the hat to encourage agents ...