Central Bank revises up year-end inflation forecast
The Turkish Central Bank on Jan. 27 revised its year end inflation forecast upwards for both 2022 and 2023 while keeping its medium-term target at 5 percent.
Annual inflation is projected to hit 23.2 percent in Turkey by the end of 2022, revised up from 11.8 percent in the previous report, Central Bank Governor Şahap Kavcıoğlu said at a meeting held to release the bank’s first quarterly inflation report this year.
The annual inflation forecast for end-2023 was also raised to 8.2 percent from 7 percent, the governor said at the meeting.
“Increase in inflation in the recent period has been driven by distorted pricing behavior due to unhealthy price formations in the foreign exchange market, supply side factors such as the rise in global food and agricultural commodity prices, supply constraints, and demand developments,” Kavcıoğlu said.
He added that the bank “expects disinflation process to start on the back of measures taken for sustainable price and financial stability along with the decline in inflation owing to the base effect.”
“Reshaping price stability on a sustainable basis is possible by making the Turkish Lira the essential element of the financial system,” read Kavcıoğlu’s briefing note.
“The liraization strategy is created with a holistic approach that focuses on the use of the Turkish Lira in the system, through new financial products, collateral diversification and liquidity management practices.”
Turkey’s annual inflation rate hit 36 percent in December 2021, according to the Turkish Statistical Institute (TÜİK).
A chart shared by the bank showed it expects inflation to approach 50 percent in January, peak near 55 percent in May and then drop sharply in the third quarter.
The Turkish economy is expected to post a current account surplus this year, Kavcıoğlu also said.
Turkey’s current account balance posted a $2.68 billion deficit in November 2021 after recording surplus for three months in a row. The 12-month rolling deficit totaled $14.25 billion.
In November 2021, the Turkish government launched a new economic program that prioritises low interest rates, exports, employment, production and investment.
The Central Bank has cut its policy rate by 500 basis points to 14 percent since September 2021.