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Turkey’s central bank raises its year-end inflation forecast to 58 percent

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Turkey’s central bank more than doubled its year-end inflation forecast to 58 percent on Thursday as its new Wall Street-trained governor vowed to keep raising interest rates after years of controversial policies, Agence France-Presse reported.

Former Goldman Sachs and First Republic Bank executive Hafize Gaye Erkan announced the revised projections at her first press conference since her appointment last month.

The forecast, up from 22.3 percent prior to Erkan taking over, follows years of doubts from independent economists about the official rate.

Since Erkan took office, the central bank has increased interest rates twice as it pivots away from President Recep Tayyip Erdoğan’s unorthodox policy of cutting borrowing costs to fight inflation.

She indicated on Thursday that more hikes were coming.

“We will gradually strengthen the monetary tightening as needed until a significant improvement in inflation is achieved,” Erkan told journalists.

She said inflation would be on an upward trend “temporarily” due to the exchange rate and fiscal measures.

Erkan added that the bank’s main goal was price stability and that she hoped inflation would be on a downward trend with the start of monetary tightening.

The bank nearly doubled its rate last month from 8.5 percent to 15 percent but its following hike was smaller, raising it to 17.5 percent.

While markets have been clamoring for rate increases, the moves disappointed as analysts said they were not ambitious enough.

The Turkish currency has lost a quarter of its value against the dollar since the end of May. On Thursday morning the lira stood at 26.7 to the dollar.

Erkan is the first woman to hold the job.

Her resume includes diplomas from Princeton and Harvard, a top job at Wall Street titan Goldman Sachs and the role of co-CEO of California-based First Republic Bank.

Erdoğan also named former Merrill Lynch economist Mehmet Şimşek as finance minister.

Both have promoted conventional policies that include interest rate hikes to combat inflation — the opposite of the approach long backed by Erdoğan, who has a history of sacking the bank’s governors.

Erkan assured that after 2025, the period of stability would begin.

“We will continue to use all our tools with determination until inflation reduces to single digits,” she said.

BlueBay Asset Management economist Timothy Ash said on Twitter (which is being rebranded as X) that Erkan came across well in her press conference as she was “not sugar coating the problems with inflation.”

Even as inflation soared to 85.5 percent in October, Erdoğan continued to declare rate increase as an enemy.

But he said after winning a hard-fought election in May that he would approve his new economic team’s recipe to get Turkey out of its current troubles, even if he still did not back higher rates.

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