Bi-Weekly Report 12 – 25 January 2021

Following an aggressive policy tightening in Q4:20 -- that led to a c. 13% appreciation in the TRY against the USD from its all-time lows in November -- the CBRT shifts to a “wait-and-see” mode

Higher food prices and a weaker TRY pushed up headline inflation to a 16-month high of 14.6% y-o-y at end-2020 against 11.8% at end-2019

Inflationary pressures are projected to ease modestly, but only after mid-2021

Headline inflation eased to 1.3% y-o-y at end-2020 from 1.9% at end-2019, below the lower-end of the NBS’s target range (3±1.5%)

The inflation path is set to remain in the lower half of the NBS’s target range until end-2022

Monetary policy is expected to remain accommodative in 2021, despite limited room for further rate cuts

GDP contraction eased markedly to -3.5% y-o-y (up 9.8% q-o-q s.a.) in Q3:20 from -10.5% in Q2:20, following the re-opening of the economy

Economic activity is expected to have lost momentum again in Q4:20, in view of the particularly intense second COVID-19 wave

However, in FY:21, GDP is set to rebound strongly -- on the back of a procyclical fiscal policy -- recouping most part of its COVID-19-related losses