Turkey’s central bank sharply raises yearend inflation forecast: report

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Central Bank Governor Murat Uysal PHOTO: Bloomberg

Turkey’s central bank sharply raised its end-year inflation forecast to 8.9 percent on Wednesday, after three months of price rises through the pandemic, but its chief remained optimistic a downtrend would begin as soon as this month, according to Reuters.

In a brief press conference Governor Murat Uysal downplayed concerns about the bank’s depleted reserves and he did not address a volatile drop in the Turkish lira this week that could keep pressure on that FX buffer.

The bank had forecast year-end inflation of 7.4 percent in its previous quarterly report. It also raised its forecast for end-2021 inflation to 6.2 percent from 5.4 percent at the quarterly briefing, at which Uysal said forecasts assume no second coronavirus wave.

The bank halted an aggressive interest rate-cutting cycle in June and held policy steady this month. Economists are somewhat split whether it could shift to monetary tightening to address Turkey’s negative real rate and stubbornly high inflation.

The pace of economic recovery from the pandemic will depend on normalization steps, he said. Turkey has recorded nearly 230,000 COVID-19 cases, and containment measures are expected to shrink the economy this year.

Inflation edged up to 12.6 percent in June.

Uysal said the bank — which in past quarters had steadily downgraded inflation forecasts — reversed course and raised them due in part to imports and food prices. But he said inflation would enter a falling trend from July.

The lira, which tumbled this week against the dollar after two months of trading flat, stood at 6.9525 after the report, some 0.2 percent weaker than Tuesday’s close.

Uysal also said that a fall in goods and commodity prices will support an improvement in the current account balance.

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