Turkish Central Bank puts blame for high inflation on food prices

ANKARA/ISTANBUL

The improvement in Turkey’s core inflation continued in February, with the slight rise largely due to food prices, the Central Bank announced on March 4.

In a statement after data on March 3 showed consumer prices in February rose by 0.71 percent, slightly lower than expected, the Bank stated that non-food annual inflation continued to fall.

Economists expect the Central Bank to cut its policy rate by a further 25 basis points at its next meeting on March 17, if the Turkish Lira does not tumble sharply.

However, the lira dropped to its latest all-time low of 2.5496 against the dollar, bringing its losses so far this year to 9 percent.

Sentiment towards the lira was not helped by data on March 3 showing annual February inflation rising to 7.44 percent, sharply above the bank’s 5 percent target, limiting its room to cut rates as sharply as President Recep Tayyip Erdoğan and several leading ministers in the cabinet want.

The Central Bank said in its monetary policy committee meeting notes published on March 3 that its ongoing cautious monetary policy, along with prudent fiscal and macro-prudential policies, are having a favorable impact on inflation, especially on inflation excluding energy and food.

“In this regard, the Committee anticipates that core inflation will continue to decline. In addition, lower commodity prices, particularly oil, continue to support disinflation. However, the recent volatility in oil prices and exchange rates might limit the support provided by energy products to disinflation,” it stated.

The Bank cut its one-week repo rate by 25 basis points on Feb. 24, as inflation slows and it faces growing political pressure to ease monetary policy.