Turkey’s central bank more than doubles 2023 inflation forecast to 58%

Turkish Central Bank Governor Hafize Gaye Erkan answers questions during a news conference for the Inflation Report 2023-III in Ankara, Turkey on July 27, 2023.

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Turkey’s central bank expects inflation to hit 58% by the end of 2023, its new governor Hafize Gaye Erkan said in her debut news conference Thursday, as she committed to “restore anchoring of expectations as well as predictability.”

The new forecast is more than double the 22.3% outlined in the central bank’s last inflation report three months ago.

Erkan said exchange rate developments, changes to economic policy, stronger-than-expected domestic demand, and a new forecasting approach had all contributed to the higher forecast.

Appointed to the central bank on June 9, analysts suggested Erkan’s arrival — along with a new Turkish finance minister — could signal a pivot in monetary policy following years of low borrowing costs and soaring inflation.

This expectation was met later in the month, when the central bank almost doubled its key interest rate from 8.5% to 15%, its first hike since March 2021. This was followed by a 250 basis point hike in July, although this was lower than expectated.

While rising prices have plagued many economies around the world, inflation has hit eye-watering levels in Turkey of up to 85%. Inflation in June came in at 38.2% on an annual basis, and 3.9% month-on-month.

In her press conference Thursday, Erkan said food inflation is expected to top 60% at the end of the year.

The central bank also revised its forecast for the end of 2024 to 33%, and its forecast for the end of the following year to 15%.

“Through decisions on quantitative tightening, we will ensure a stable development in the Turkish lira liquidity without generating excessiveness in exchange rates and domestic demand,” Erkan said.

“We will dynamically optimize the monetary tightening process by continuously measuring the effects of our decisions on inflation, markets, monetary and financial conditions.”

The Turkish lira has marked numerous new record lows over the past 18 months, as traders digested lower rates in the country despite most other major central banks embarking on monetary tightening programs.

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