Turkish central bank sharply revises inflation forecast upward from 8.4 to 13.4 pct

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ANKARA, TURKEY - JULY 31: Governor of Central Bank of the Republic of Turkey (CBRT), Murat Cetinkaya makes a statement during the Inflation Report Information Meeting on releasing third inflation report this year at the Sheraton Hotel in Ankara, Turkey on July 31, 2018. Evrim Aydin / Anadolu Agency

Turkey’s central bank on Tuesday sharply raised its inflation forecast for this year and next, saying price pressures were the only factor in its policy decisions as it sought to emphasize its independence from political interference, Reuters reported on Tuesday.

The bank raised its 2018 estimate to 13.4 percent from 8.4 percent and its 2019 year-end forecast to 9.3 percent from 6.5 percent, reflecting the impact of a free-falling lira and rising import prices.

It surprised financial markets this month with a decision to keep rates on hold, even after inflation spiked to a 14-year high of 15.39 percent in June.

The bank’s apparent reluctance to deliver the big rate hikes investors say are necessary to rebalance the economy has increased concern it is under pressure from President Recep Tayyip Erdoğan.

Erdoğan — a self-described “enemy of interest rates” who said prior to being re-elected last month that he planned to exercise greater control over monetary policy — has repeatedly called for cheaper borrowing costs.

His interventions have contributed to sending the lira down by a fifth this year.

“The central bank and monetary policy committee make decisions based on the inflation outlook alone,” Governor Murat Çetinkaya told a news conference following the release of the bank’s quarterly inflation report.

“The central bank is granted independence of its objectives and tools.”

Inflation has helped drive the lira beyond 4.9 to the dollar in recent weeks, despite interest rate hikes of 500 basis points since April.

Data from the second quarter suggested economic activity was decelerating and had started rebalancing, Çetinkaya said.

However, inflation would show a limited increase in the third quarter, he said, adding that a tight monetary policy stance would be maintained for a long time.

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