Turkeys and South Africa Central Banks are looking forward.
2023-07-21
■ Turkey’s central bank implemented the market expectation of a 500bps interest rate rise, but the monetary tightening policy is expected to continue.
■ In the context of slowing price growth, South Africa’s central bank will maintain policy interest rates unchanged, and the observation of interest rate cuts will also be constrained.
On July 20, Turkey’s central Bank and the South Africa Reserve Bank (SARB) will hold a financial policy meeting. Based on the market expectation of policy interest rate, Turkey’s central bank will raise it from 15.00% to 20.00%, while SARB is expected to remain unchanged at 8.25%. This article focuses on price trends and organizes the trends of the two banks.
In Turkey, under the leadership of Mehmet Simsek, the finance minister who took office in June and President Recep Tayyip Erdogan said, we will focus on whether we will further promote the attitude of curbing inflation. At the last financial policy conference held on June 22nd, we just clarified the transformation of financial policy goals and guidelines, shifting from "supporting price stability and reviving demand" to "stabilizing inflation expectations". In addition, in the summary of the June policy meeting released on July 3rd, the policy of "continuing monetary tightening until there is a significant improvement in the price situation" was confirmed.
Since then, the year-on-year growth rate of the consumer price index (CPI) in June announced on July 5 has further slowed down to 38.21%. However, the minimum wage has been further raised by 34% since July 1st, following a 55% increase in January this year. Therefore, there are still concerns that inflation will accelerate again in the future. Among them, in order to prevent the devaluation of the lira, Turkey’s central bank is very likely to target a "real interest rate increase". Even if the interest rate exceeds the market forecast (500bps) this time, the monetary tightening policy will continue.
In South Africa, price growth has slowed significantly. The year-on-year growth rate of CPI growth in June announced on July 19th, slowed to 5.4%, which is within the price target range of South Africa’s central bank (3-6% year-on-year). Therefore, it can be said that the possibility of policy interest rates remaining unchanged at the meeting further increases. In contrast, although the planned power outage has been easing since June, the adverse impact on the economy has been profound so far. The private sector PMI in June was below 50, which is the boundary between 48.7 and four consecutive months of economic recession. A part of the market also believes that if the price trend calms down like this, with the aim of supporting the economy, interest rates will be lowered starting early next year.
However, at the policy meeting on May 25th, SARB pointed out that the policy interest rate was unexpected and unanimously increased by 50bps, posing an upward risk of price fluctuations. Especially he said that he is closely monitoring the volatility risks of 'core commodity and food prices'. The core CPI growth rate, excluding food and energy, peaked at 5.3% year-on-year in April and slowed to 5.0% year-on-year in June. Even while maintaining policy interest rates unchanged, will SARB still restrain the market's early interest rate cuts while retaining the possibility of additional interest rate hikes?
■ In the context of slowing price growth, South Africa’s central bank will maintain policy interest rates unchanged, and the observation of interest rate cuts will also be constrained.
On July 20, Turkey’s central Bank and the South Africa Reserve Bank (SARB) will hold a financial policy meeting. Based on the market expectation of policy interest rate, Turkey’s central bank will raise it from 15.00% to 20.00%, while SARB is expected to remain unchanged at 8.25%. This article focuses on price trends and organizes the trends of the two banks.
In Turkey, under the leadership of Mehmet Simsek, the finance minister who took office in June and President Recep Tayyip Erdogan said, we will focus on whether we will further promote the attitude of curbing inflation. At the last financial policy conference held on June 22nd, we just clarified the transformation of financial policy goals and guidelines, shifting from "supporting price stability and reviving demand" to "stabilizing inflation expectations". In addition, in the summary of the June policy meeting released on July 3rd, the policy of "continuing monetary tightening until there is a significant improvement in the price situation" was confirmed.
Since then, the year-on-year growth rate of the consumer price index (CPI) in June announced on July 5 has further slowed down to 38.21%. However, the minimum wage has been further raised by 34% since July 1st, following a 55% increase in January this year. Therefore, there are still concerns that inflation will accelerate again in the future. Among them, in order to prevent the devaluation of the lira, Turkey’s central bank is very likely to target a "real interest rate increase". Even if the interest rate exceeds the market forecast (500bps) this time, the monetary tightening policy will continue.
In South Africa, price growth has slowed significantly. The year-on-year growth rate of CPI growth in June announced on July 19th, slowed to 5.4%, which is within the price target range of South Africa’s central bank (3-6% year-on-year). Therefore, it can be said that the possibility of policy interest rates remaining unchanged at the meeting further increases. In contrast, although the planned power outage has been easing since June, the adverse impact on the economy has been profound so far. The private sector PMI in June was below 50, which is the boundary between 48.7 and four consecutive months of economic recession. A part of the market also believes that if the price trend calms down like this, with the aim of supporting the economy, interest rates will be lowered starting early next year.
However, at the policy meeting on May 25th, SARB pointed out that the policy interest rate was unexpected and unanimously increased by 50bps, posing an upward risk of price fluctuations. Especially he said that he is closely monitoring the volatility risks of 'core commodity and food prices'. The core CPI growth rate, excluding food and energy, peaked at 5.3% year-on-year in April and slowed to 5.0% year-on-year in June. Even while maintaining policy interest rates unchanged, will SARB still restrain the market's early interest rate cuts while retaining the possibility of additional interest rate hikes?