Has the surge in oil prices further fueled Turkish inflation?

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

Soaring global energy prices likely propelled 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 cut its benchmark rate by a cumulative 500 basis points since September after self-proclaimed ‘enemy of interest’ Erdogan ordered policymakers to lower borrowing rates to fuel economic growth ahead of the election. General of 2023.

In the months following the September rate cut, the lira fell 40% against the dollar, triggering an inflationary spiral.

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

A sharp rise in commodity prices triggered by Russia’s invasion of Ukraine only made matters worse. State-owned energy importer Botas on Friday raised natural gas prices for households by 35% and for businesses by 50%. Turkey imports almost all the oil and natural gas it consumes.

Despite signs of a further acceleration in inflation, 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 that were to end tomorrow, it will take time for Russia’s sanctions to be lifted and for supply chains to return to normal. normal,” said Enver Erkan, chief economist at Tera Securities in Istanbul.

Still, the central bank “avoids inflation targeting for as long as it can,” he said. “The government does not want a rate hike a year before the election or make concessions on economic growth.”

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

Prices last rose so rapidly in March 2002, just before Erdogan’s Justice and Development party came to power on a platform of sound economic management.

But the pain Turkish households are feeling as groceries, utilities and medicine soar has eroded support for Erdogan’s party to its lowest level since he came to power. Ayla Jean Yackley

What Will the Fed Minutes Say About Oversized Rate Hikes?

Market participants will look to Wednesday’s release of the Federal Reserve’s minutes from its March meeting for clues about the central bank’s aggressiveness in curbing inflation.

Any discussion of the Fed beginning to reduce its balance sheet by $9,000,000,000 will be of particular interest, either by allowing its US government debt securities to mature without replacing them 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. A major question that needs to be answered concerns the pace of QT – the “caps” on the amount of debt that can come due each month.

While QT’s outlook has been priced in to some extent by the market, large cap talk or an otherwise aggressive approach could push Treasuries lower as the market braces for another wave of supply.

The market will also be on the lookout for any signal regarding the possibility of an interest rate hike of 0.5 percentage points. The futures market is currently pricing in an oversized rate hike at the May Fed meeting, and at least one more this year.

What, if anything, the Fed said at its meeting, increases of around 0.5 percentage points may not drastically alter market expectations. Chairman Jay Powell, in the days following 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 remarks, other Fed officials have come 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 the total value of loans extended by banks in China to businesses and consumers – slowed more than expected in February, rising by just Rmb 1.23 billion compared to forecasts. economists of 1.49 billion Rmb. The deficit prompted the authorities to take further measures to support the economy.

BNP Paribas analysts predict that new loans for March will reach Rmb2.9tn. But with around 120 Chinese cities hit by China’s biggest Covid-19 outbreak since the start of the pandemic, the March figure – expected on April 8 – carries downside risk, said Xingdong Chen, chief economist. for China at the French bank.

“Because between growth and Covid control, the local government for me sees Covid control as a priority,” Chen said. “It is sad.”

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

“[So] local governments are under pressure to accelerate ongoing projects and [to find] new projects to start. . .[but]we’re not really too optimistic about that part,” Chen added.

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

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

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