Postcard from Istanbul: Falling oil prices revive easing expectations

Research evidence excerpt

Postcard from Istanbul: Falling oil prices revive easing expectations

Postcard from Istanbul

We recently visited Istanbul, meeting executives from local banks and asset managers

and exchanging views on macroeconomic outlook and markets. The tone on the macro

outlook has turned more constructive following the news of a US-Iran deal. In this note,

we summarise the key discussion points and give our updated views.

The mood has become more positive

Since the start of the war, markets have been focused on its implications for the current

account, reserves and inflation, particularly with oil prices rising above $110/bbl and

risks of Hormuz disruptions fueling broader commodity pressures. More recently, news

of a US–Iran deal and a path towards reopening Hormuz have driven oil prices down to

c.$80/bbl, easing upside risks to both inflation and the current account. While

uncertainty around the details remains, our discussions suggest a growing consensus

that the deal will hold and that oil prices may decline further as supply normalises.

Reflecting this shift, conversations with bankers have increasingly focused on the

implications of lower oil prices and how quickly—and by how much—the CBRT could

move to ease funding costs.

A relatively benign near-term inflation outlook

Monthly inflation is expected to moderate further in June to 1.04% month-on-month

according to our forecast (from 1.71% in May). Given last year’s June inflation level at

1.37%, headline inflation should resume its decline (to 32.2% year-on-year according to

our forecast) after a two-month hiatus, which saw it rise to 32.6%. Independent CPI

nowcast webtufe tracks June inflation even lower at 0.86% driven in particular by a

decline in vegetable and fuel prices as well as moderating core inflation dynamics.