Turkey Central Bank hikes inflation forecasts on oil, food prices, currency

For 2018, the Turkish central bank raised its forecast for inflation to 13.4% from 8.4%, while for 2019, it raised its expectations to 9.3% from 6.5%. The CBRT cited upward revisions of oil and food prices as the causes of the higher inflation added to currency depreciation.

Turkey's annual inflation surged to 15.4% in June from 12.15% in May, more than triple the CBRT’s 5% target.

CBRT governor Murat Cetinkaya said the bank’s inflation projection for 2020 was 6.7%, noting that inflation would stablise at around 5% in the medium on the back of the tightened monetary policy which he said would support the slowdown in inflation.

Speaking in Ankara at the presentation of the third inflation report of 2018, Cetinkaya stated that the CBRT “takes its decisions based on inflation outlook. [The CBRT] has a target and [monetary policy] tool independence."

"The central bank takes necessary steps for price stability and will continue to do so," the top official stated, noting that the bank would tighten monetary policy if needed.

Last week, the Turkish central bank kept its main interest rate unchanged at 17.75%.

So far in 2018, the Turkish lira has shed almost a quarter of its value on the back of concerns over the country's double-digit inflation added to a growing current account deficit, which is a major indicator of the country's economic vulnerability.

The lira’s sharp drop was mostly due to fears that re-elected President Recep Tayyip Erdogan would reduce the CBRT’s independence. In addition, emerging market currencies have suffered from dollar strength in recent months.

By 11:40 am GMT, the Turkish lira fell 0.12% against the dollar to TRY 4.8875.