What matters on Tuesday, July 5

The Consumer Price Index (CPI) rose by 4.95% in June, according to the Turkish Statistical Institute (TurkStat). Although the monthly inflation remained below the market expectation of 5.4%, annual inflation reached 78.62%, hitting a 24-year high. The public price hike during June made the highest contribution to the surge in inflation. While the hike in electricity and natural gas prices and tax increases generated 30% of the monthly inflation, the price surge in sugar, tea, and milk, in the food group, raised the figure as well.

The increase in gasoline and diesel fuel prices with the adverse impact of the upward trend in global crude oil prices also raised inflation. Annual producer inflation, meanwhile, rose to 138.31% last month. While analysts continue to discuss when the peak will be seen in inflation, they said the increase in foreign exchange (FX) rates affects this expectation. Moreover, they stated that demand inflation is also quite high along with cost inflation.

Treasury and Finance Minister Nureddin Nebati tweeted that the ongoing high course in global commodity prices, including energy and agriculture products, led to inflation reaching 4.95% despite the government’s steps to increase stability in financial markets. Nebati also noted that necessary measures are being taken to support the purchasing power of employees and retirees along with various measures to be taken against the price increase. He also added that the government aims to reduce prices by implementing structural policies to increase competition and productivity in the goods and services markets in the upcoming period in addition to the coordination of monetary and fiscal policies.

Labor and Social Security Minister Vedat Bilgin said inflation exceeded the government’s forecasts and they didn’t expect such an increase. “The adverse impact of the energy sector is high in the figure,” Bilgin added.

The latest decision by the Banking Regulation and Supervision Agency (BDDK) aims for loans to be used selectively in the right places, according to Alpaslan Cakar, Chairman of the Banks Association of Turkey (TBB). Speaking to the broadcaster HaberTurk, Cakar said the loans included in the scope of supply finance, corporate credit cards, and Direct Debiting System (DBS) cards are exempted from the BDDK’s new decision, while loans provided by factoring institutions are subject to the tax base evaluation. BDDK has recently banned commercial TRY loans to independently audited companies holding FX corresponding to more than TRY 15m in cash if this exceeds 10% of their total assets or one-year sales revenue.

On the foreign policy side, Italian Prime Minister Mario Draghi will pay an official visit to Turkey today at the invitation of President Recep Tayyip Erdogan, according to a statement from the Communications Directorate. Draghi will preside over the 3rd Turkey-Italy Intergovernmental Summit with Erdogan as part of his visit to the country. As part of the summit, Turkish-Italian relations will be reviewed in all dimensions, and steps that can be taken to deepen and develop bilateral cooperation will be discussed. During Draghi’s visit, views will be exchanged on bilateral ties, Turkey-EU relations, as well as regional and global issues.


The Central Bank will release the real effective exchange rate for June (2.30 p.m.).


>> The Venture Capital Trust Fund, which was established in 2021 with an initial capital of TRY 100m by the Bilisim Vadisi Technology Development Zone, Albaraka Turk Participation Bank, and Vakif Participation Bank, has invested in 11 startups to date, according to a statement from the Ministry of Industry and Technology. The fund, which was established to invest in startups operating in civil technologies, has examined around 1,000 firms since its foundation.

>> Some 57,113 new coronavirus cases and 25 deaths due to COVID-19 were reported between June 27 and July 3 by the Health Ministry. The number of coronavirus cases in this period doubled the figure recorded in the previous week.

>> The passenger car and light commercial vehicle (LCV) market contracted by 9.3% to 357,904 units in the first half of the year, compared to the same period of the previous year, according to the Automotive Distributers’ Association (ODD). The market grew by 1.0% to 80,652 in June.


>> Foreign exchange sales by public banks approaches USD 3bn

After the decision by the BDDK, which aims to stop TRY devaluation and reduce loans, intensive FX sales were carried out by the Central Bank and public banks. FX sales, which started with the announcement of the decision last Friday and tried to meet individual and corporate demand this week, reached USD 2-3bn, according to banking sources.

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