Has rising oil prices further fueled Turkish inflation?

Did Turkish inflation hit a 20-year high in March?

Rising global energy prices likely pushed Turkish inflation to its fastest rate in two decades in March, but President Recep Tayyip Erdogan’s fixation on low interest rates means the central bank remains reluctant to respond with a tighter monetary policy.

The bank has slashed its benchmark rate by a cumulative 500 basis points since September after Erdogan, a self-described “enemy of interest,” ordered lawmakers to cut interest rates to boost economic growth ahead of general elections in 2023.

In the months since the September rate cut, the lira has plunged 40 percent against the dollar, setting off an inflationary spiral.

Economists polled by Reuters expect official data, to be released on April 4, to show consumer prices rose 61.6 percent year-over-year in March.

Line chart of year-over-year percentage change in consumer prices showing surges in Turkish inflation

A sharp rise in commodity prices triggered by the Russian invasion of Ukraine has only made the pain worse. State power importer Boots raised natural gas prices for households by 35 percent and for businesses by 50 percent on Friday. Turkey imports almost all of the oil and natural gas it consumes.

Despite signs that inflation will accelerate further, the central bank has indicated that it believes price increases will slow once the crisis in Ukraine is resolved.

Some analysts remain cautious. “Turkey was dealing with inflation and a weak currency long before the war, and even if it ends tomorrow, it will take time for Russia’s sanctions to be lifted and for supply chains to return to normal,” said Enver Erkan, chief economist. of Tera Securities in Istanbul.

Still, the central bank “is avoiding inflation targeting as much as it can,” he said. “The government does not want a tariff increase a year before the elections or make any concessions on economic growth.”

Erdogan has said the principles of Islam, which forbids usury, now guide his economic policy and vowed the weaker lira will boost exports, expand manufacturing and create new jobs.

Prices rose this fast for the last time in March 2002, just before Erdogan’s Justice and Development party came to power on a platform of sound economic management.

But the pain felt by Turkish households as food, public services and medicine have increased has eroded support for Erdogan’s party to its lowest level since he took office. Ayla Jean Yackley

What will the Fed minutes say about the big rate hikes?

Market participants will be watching Wednesday’s release of the Federal Reserve’s March meeting minutes for clues as to how aggressive the central bank is willing to be in curbing inflation.

Of particular note will be any discussion of the start of the Federal Reserve’s $9 trillion balance sheet write-down, either by allowing its holdings of US government debt to mature without replacement or by actively selling the securities.

Fed Chairman Jay Powell has signaled that the Fed may be ready to announce a decision on quantitative tightening (QT) as early as May. An important question that needs to be answered is about QT pacing – the “limits” on the amount of debt that is allowed to mature each month.

While the market has priced in the QT outlook to some extent, discussion of large caps or an aggressive approach could push Treasuries lower as the market braces for a new wave of supply. .

The market will also be watching for any signs of the possibility of interest rate increases of 0.5 percentage points. The futures market is currently pricing in a large rate hike at the Fed’s May meeting, and at least one more this year.

What, if anything, the Fed said at its meeting about 0.5 percentage point hikes may not drastically change market expectations. Chairman Jay Powell in the days after the March meeting said that if the Fed decided it was appropriate to raise rates by more than a quarter point, it would. Following Powell’s comments, other Fed officials echoed his sentiments. kate duguid

Has the latest Covid-19 outbreak slowed China’s lending growth?

The growth of new yuan loans, a measure of the total value of loans made by banks in China to businesses and consumers, slowed more than expected in February, rising just 1.23 trillion yuan compared to forecasts. of economists 1.49 trillion yuan. The deficit has put pressure on the authorities to take more measures to support the economy.

Analysts at BNP Paribas predict that new loans for March will rise to 2.9 trillion yuan. But with some 120 Chinese cities affected by the largest Covid-19 outbreak in China since the pandemic began, the March figure, due to be released on April 8, carries a downside risk, said Xingdong Chen, an economist. chief for China of the French bank.

“Because between the growth and the control of Covid, the local government for me is taking the control of Covid as a priority,” Chen said. “That’s unfortunate.”

Chen said that while banks and local authorities had funds to distribute, the latest data from China’s Purchasing Managers’ Index, which on Thursday showed a contraction in the economy’s manufacturing and services sectors for the first time in nearly two years, suggested that demand for the loans may have flagged in March.

“[So] local governments are under pressure to speed up ongoing projects and [to find] new projects to start. . .[but]Actually, we are not too optimistic about this part,” Chen added.

Going forward, the question is whether China’s rapid lockdowns, including one in the Shanghai mall, will be enough to quickly bring outbreaks under control and release pent-up demand.

“April may be improving due to sequential seasonal demand,” Chen said. “[But] actual performance and more normal performance will wait until May.” William Langley

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