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Turkey’s inflation rises below expectations in July: report

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Turkey’s inflation rose a bit less than expected to 16.65 percent in July after tax cuts on some goods expired, briefly disrupting a downward trend that is expected to resume in the coming months, clearing the path to further interest-rate cuts, Reuters reported.

The median estimate of annual consumer price inflation was 16.9 percent, based on a Reuters poll. It was up from 15.72 percent in June. Month-on-month, consumer prices rose 1.36 percent, lower than the poll’s 1.6 percent median forecast.

The lira has firmed in recent months even as worries remain over central bank independence, possible US sanctions over Russian missile system and a nearly year-long “dollarization” trend of Turks turning to more stable currencies.

Separately on Monday, Turkey’s central bank hiked requirement ratios on forex deposits, the latest in a series of moves this year to trim foreign currency in the banking sector. More than half of all deposits are now non-lira.

The lira firmed slightly following the inflation data and the central bank move but was still down on the day. It stood at 5.5665 against the dollar at 0825 GMT, declining some 0.3 percent from Friday’s close of 5.5490.

The currency, which has mostly recovered from another selloff earlier this year, has firmed in recent weeks even after the central bank slashed its policy rate by 425 basis points in July to 19.75 percent.

Miscellaneous goods and services prices showed the largest annual increase last month, surging 26.93 percent. That was followed by household goods prices, which rose 25.41 percent.

Discounts in the value added and special consumption taxes on white goods, furniture and automotives ended on June 30. They were adopted last year in the wake of the crisis to spur spending and boost an economy that had tipped into recession.

Adding to the one-off price pressures, consumer electricity tariffs were also hiked by 15 percent as of July 1.

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