MPC: Playing catch-up with reality -- very slowly

TURKEY - In Brief 17 Jun 2021 by Murat Ucer

---

As expected, the Monetary Policy Committee kept the policy rate (one-week repo rate) unchanged at 19% (simple) today.A comparison of the new statement with the old yields very little tangible differences, as far as we can see, though there is perhaps a bit more emphasis on – or a belated acknowledgement of, rather-- heightened inflation risks, both global and domestic, as well as an effort to sound more hawkish.The paragraph related to the inflation and monetary policy outlook is slightly more elaborate but almost identical with the previous one, with the specific reference to the existing monetary policy stance amended to include “tight” and “decisively”. The problem, of course, is that monetary policy stance does not become tight because the CBRT says so. In fact, since inflation risks have become more visible and inflation expectations have deteriorated further since the last MPC meeting (of May 6), the monetary stance, if anything, has become looser now, than it was then. As for the “decisively” bit, this is one of those CBRT twists that makes us think again of the late Robin Williams joke about the British (vs. American police): ‘Stop!...or I’ll say stop again!’.So, there is not much new really to report on today’s MPC decision, or the statement. We take all this as evidence of a central bank struggling between enormous political pressure to ease policy and a nasty inflation outlook. The Bank must already see that its yearend forecast of 12.2% is hugely optimistic at this point, but it cannot yet acknowledge it because that would call for a rate hike, whereas it is desperate to maintain the easing bias for political reasons.This is an accident-prone environment, e...