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

A surge in global energy prices may have pushed Turkey’s inflation to its highest level in 20 years in March, but President Recep Tayyip Erdogan’s obsession with low interest rates means the central bank remains reluctant Tighter monetary policy in response.

Since September, the bank has slashed its benchmark rate by a cumulative 500 basis points after Erdogan, a self-described “enemy of interest”, ordered policymakers to lower borrowing rates ahead of the 2023 election to boost economic growth.

The lira has fallen 40 percent against the dollar in the months since the September rate cut, sparking an inflationary spiral.

Economists polled by Reuters expect official data, due on April 4, to show consumer prices rose 61.6 percent in March from a year earlier.

The sharp rise in commodity prices triggered by Russia’s invasion of Ukraine has only made the pain worse. On Friday, national energy importer Bottas raised gas prices by 35% for households and 50% for companies. Almost all oil and gas consumed in Turkey is imported.

While there are signs that inflation will accelerate further, the central bank said it believes price increases will slow once the Ukraine crisis is resolved.

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

However, he said the central bank “is avoiding inflation targeting as much as possible”. “The government does not want to raise interest rates in the year before the election, nor does it want to make any concessions to economic growth.”

Erdogan has said that Islamic teachings against usury now guide his economic policy, and vowed that a weak lira will boost exports, expand manufacturing and create new jobs.

The last time prices rose this quickly was in March 2002, just before Erdogan’s AKP came to power on a platform of sound economic management.

But the pain felt by Turkish households has eroded support for Erdogan’s party to the lowest level since he took office, as the prices of groceries, utilities and medicines have soared. Ella Jane Akley

What do the Fed minutes say about the massive rate hike?

Market participants will be watching the minutes of the Federal Reserve’s March meeting, released on Wednesday, for clues on how aggressively the central bank is willing to take to curb inflation.

Of particular interest would be any talk of the Fed starting to shrink its $9 trillion balance sheet, either by allowing its holdings of U.S. government debt to mature without replacing them, or by aggressively selling securities.

Federal Reserve Chairman Jay Powell said the Fed may be ready to announce a decision on quantitative tightening (QT) in May. A major question that needs to be answered is about the speed of QT – the “cap” on the amount of debt allowed to come due each month.

While QT’s prospects are partly priced in, discussions about large-cap stocks or other aggressive moves could push Treasuries lower as the market prepares for a new wave of supply.

The market will also be looking for any signal on the likelihood of a 0.5 percentage point hike. Futures markets are now pricing in an outsized rate hike at the Fed’s May meeting, and at least one more this year.

The roughly 0.5 percentage point rate hike the Fed said at the meeting may not significantly change market expectations. Federal Reserve Chairman Jay Powell said in the days after the March meeting that if the central bank decided it was appropriate to raise interest rates by more than 25 percentage points, it would do so. After Powell’s speech, other Fed officials came forward to echo his sentiments. Kate Duguid

Has the latest Covid-19 outbreak dampened loan growth in China?

Growth in new yuan loans, a measure of total lending by Chinese banks to businesses and consumers, slowed more than expected in February, rising by just 1.23 tonnes from economists’ forecast of 1.49 tonnes. The shortage has put pressure on the authorities to take further action to support the economy.

Analysts at BNP Paribas forecast new loans to rise to 2.9 trillion yuan in March. But Chen Xingdong, chief China economist at Bank of France, said that since the start of the pandemic, about 120 Chinese cities have been affected by the country’s largest Covid-19 outbreak, and there is a downside in March data (to be released on April 8) risk.

“Because between growth and Covid control, I think the local government has made Covid control a priority,” Chen said. “That’s unfortunate.”

While banks and local authorities have funds scattered, China’s latest purchasing managers’ index data showed Thursday’s manufacturing and services economies contracted for the first time in nearly two years, suggesting that demand for lending may have emerged in March, Chen said. question.

“[So] Local governments face accelerating projects under construction and [to find] New project starts. . .[but]We’re actually not too optimistic about this part,” Chen added.

Looking ahead, the question is whether China’s emergency lockdowns, including in Shanghai’s commercial hub, will be enough to quickly contain the outbreak and unleash pent-up demand.

“April may improve due to continuous seasonal demand,” Chen said. “[But] The real performance and more normal performance will have to wait until May. ” William Langley