Turkey's Central Bank raises year-end inflation forecast from 22% to 58%

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Central Bank Governor Hafize Gaye Erkan has announced that Turkey's year-end inflation forecast, previously at 22.3%, has now surged to 58%. The food inflation is expected to be at 61%, according to the bank's inflation forecast.

Stressing that price stability remains the core objective at the Central Bank, Erkan emphasized their commitment to utilizing all tools decisively to achieve this goal.

"We have taken and will continue to take selective credit and quantitative tightening decisions to support the process of monetary tightening, in addition to interest rate hikes," she stated.

Erkan's appointment on June 9 marked a shift in the government's economic policies, signaling a departure from the previously touted "low interest rate-low inflation" approach touted by President Recep Tayyip Erdoğan. Following the appointment, the Central Bank increased the rates from 8.5% in June to 15% and then further raised to 17.5% in July.

Erkan noted that due to corrective actions taken on the exchange rate and fiscal discipline, inflation is expected to experience a temporary uptick in the short term.

"The cumulative positive effects of our interest rate hikes, quantitative and selective credit tightening decisions will begin to be felt towards the end of 2023 and especially in the second quarter of 2024, affecting inflation's main trend," she added.

Food inflation

Erkan also highlighted the ongoing upward trend in domestic food prices, attributing it to supply-side issues and market structural deficiencies.

"In recent times, we have observed significant increases in red meat and red meat-related processed food products," she said.

"Alongside red meat, we have also witnessed high-rate increases in vegetable prices affected by supply conditions. In our projections, we assumed that food price inflation will reach 61.5% by the end of 2023 and 35.0% by the end of 2024."

Regarding the updated inflation expectations, Erkan explained, "We have raised our year-end inflation forecast for 2023 to 58% and revised our 2024 year-end forecast to 33%.

"Furthermore, we anticipate inflation to decline to 15% by the end of 2025. The revision in our forecast path amounts to 35.7 percentage points for year-end 2023 and 24.2 percentage points for year-end 2024." (AD/HA/VK)