The Central Bank of the Republic of Turkiye anticipates a slower inflation rate in August due to stable food prices, amidst global economic uncertainties.
The Central Bank of the Republic of Turkiye (CBRT) has released its latest report, indicating that monthly inflation for August is expected to slow down, driven primarily by stable food prices. The August 20 meeting of the Monetary Policy Committee (MPC) highlighted that leading indicators point to a deceleration in inflation compared to the previous month.
Global Economic Context
The global economic outlook has seen modest improvements in the second quarter, but challenges remain. Labor market conditions, while still tight, have begun to show signs of easing. Supply and demand imbalances are gradually normalizing, offering a more balanced economic environment.
Key insights from the CBRT’s report include:
- Global Growth: Turkiye’s export partners, weighted by their share in Turkiye’s trade, are projected to experience a 2% growth in 2024, slightly above the 1.8% growth in 2023. Despite this, global economic activity is expected to remain weak.
- US Economic Performance: The U.S. economy continues to outperform other developed countries, with a distinct growth trajectory. However, the cautious approach to interest rate cuts and geopolitical risks are seen as major factors influencing global economic activity in 2024.
Monetary and Financial Conditions in Turkiye
The CBRT’s report also offers a detailed analysis of Turkiye’s domestic financial environment. The decline in inflation and exchange rate expectations, coupled with increased demand for Turkish lira assets from both domestic and foreign investors, has led to a surplus in market liquidity, which continues to influence deposit interest rates.
- Interest Rates: Turkish lira deposit interest rates have decreased by 55 basis points since the week of July 26, standing at 55.20% as of August 9. On the commercial side, Turkish lira commercial loan rates have also decreased by 67 basis points, now at 58.57%.
- Credit Growth: There has been a notable increase in personal credit growth, particularly in credit card balances, which saw a significant rise in the growth rate from 1.68% on July 26 to 2.27% by August 9.
Third Quarter Economic Indicators
As the third quarter progresses, data suggests a continued slowdown in domestic demand, reducing inflationary pressures. Retail sales volume indices, while showing a monthly increase, have seen a slight decline on a quarterly basis.
- Industrial Production: The industrial production index, adjusted for seasonality and calendar effects, decreased by 2.1% month-on-month in June, and by 4.7% year-on-year.
- Foreign Trade: Preliminary trade data for July indicates a decline in imports and a stable level of exports, contributing to a cautious optimism regarding the balance of payments.
Conclusion
The CBRT’s latest summary provides a comprehensive overview of the economic environment, both globally and domestically. The report highlights the ongoing challenges and potential risks for Turkiye’s economy, while also providing a cautiously optimistic outlook for the near term. The anticipated slowdown in August inflation, driven by food prices, is a positive development in an otherwise uncertain economic landscape.
As Turkiye navigates these economic challenges, the CBRT’s focus remains on maintaining financial stability and ensuring that monetary policies are effectively aligned with the evolving global economic conditions.
Key Takeaways:
- Inflation: August inflation is expected to slow due to stable food prices.
- Global Trends: Modest global growth with continued challenges in labor markets.
- Domestic Economy: Declining interest rates and credit growth, with stable demand.
Source: Trthaber / Prepared by Irem Yildiz