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Türkiye’s central bank (CBRT) raised its year-end inflation forecasts for this year and next to 65% and 36% respectively, Governor Hafize Gaye Erkan said on Thursday.
The bank’s previous inflation report three months ago forecast year-end inflation of 58% in 2023 and 33% next year.
Moreover, the 2025 inflation forecast was lowered from 15 percent to 14 percent.
Erkan told a press conference to present the CBRT’s inflation report that disinflation would start after it peaked at around 70%-75% in May.
“As we have stated in our monetary policy decision documents, we also expect a decline in the underlying trend of monthly inflation. Nevertheless, we expect that there will be temporary rises in the monthly inflation path in November, January, and May owing to several factors that fall outside the scope of the monetary policy.”
“For example, we expect that households will exceed the free natural gas utilization limit once natural gas consumption increases in November. This will have an upward mechanical effect on inflation, causing a temporary rise in monthly inflation in November. As for January 2024, we expect the impact of minimum wage adjustments, the developments regarding services items with time-dependent price setting, and automatic tax adjustments to kick in.”
“The peak of annual inflation will be recorded in May 2024 due to base effects stemming from natural gas prices. In the second half of 2024, we expect a strong and uninterrupted disinflationary process to begin as the cumulative effects of the monetary tightening will begin to take hold,” the governor added.
The inflation annual rate increased to 61.53% in September and is expected to rise into next year although the central bank raised interest rate by 2,650 basis points to 35 percent.
“During this transition period, we are witnessing a temporary rise in inflation as we had transparently shared in the July Inflation Report.”
She went on to say “In this process, we are carefully laying the groundwork for a sustainable disinflation process. The impact of monetary policy on inflation is determined by various channels such as demand, expectations, asset prices, financial conditions, and loans.”
“We will continue to use all our tools decisively until there is a significant improvement in the inflation outlook.”
She added that the bank maintained a 5% medium-term target.
“We will see the effects of our monetary tightening process in 2024 when disinflation will be established. During the disinflation period, exchange rate stability, improvement in the current account balance, lasting increase in capital inflows, and an increase in reserves will continue.”
“As a result of our decisions, the demand for Turkish lira savings instruments, particularly time deposits, increased… TL deposits rose by 970 billion Turkish liras in only eight weeks, while FX-protected deposits declined by 300 billion Turkish liras and FX deposits by 3.9 billion dollars.”
The exchange rate volatility implied by one-month US dollar/Turkish lira options fell sharply from around 60 points in May to almost 10 points, she added.
CBRT Governor announced the withdrawal of TRY 350 billion liquidity from the system with the latest reserve requirement decisions.
According to Istanbul Chamber of Commerce (İTO) data, the retail price increase, which was at 73.18% in September, decreased to an annual rate of 72.73% in October.
In October 2023 in Istanbul, the Istanbul Cost of Living Index, an indicator of retail price movements, increased by 3.69% compared to the previous month, while the Wholesale Commodity Prices Index, reflecting wholesale price movements, increased by 3.53%.
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