ANKARA
Consumer price inflation in Turkey might decline to its lowest point in the last 45 years by the end of this year, the head of the Central Bank of Turkey Erdem Basci said on Tuesday.
Speaking at the press conference held to announce the Central Bank’s “2015 Inflation Report,” Basci said that the results of the bank's tight monetary policy and macro prudential measures -- controls on credit -- were beginning to take effect.
“We have started a period of rate cuts in January. As long as we keep our cautious stance during the rate reduction period, it is possible that we will see the lowest level of inflation in the past 45 years by the end of 2015.” Basci said.
“We expect consumer price inflation to vary between 4.1 percent and 6.9 percent, with 5.5 percent as the average. Our 2016 year-end inflation expectation average is 5 percent, with the actual rate ranging between 3.2 percent and 6.8 percent.”
After leaving rates on hold for 5 consecutive months, the Central Bank of Turkey cut its key interest rate on January 20 as inflation dropped in December for the first time in the past year.
However, this cut did not satisfy government officials who demand a larger rate cut, as they see high interest rates as a limiting factor for growth.
But the Central Bank insists on maintaining high interest rates until clear signs of improvement in the inflation outlook appear.
“Consequently we cut the year-end inflation expectation, which was 6.1 percent in October, to 5.5 percent with a 0.6 percent decrease,” Basci said.
The course of oil prices, improving outlook in food inflation and reduction in the impact of the cumulative exchange rate will determine the inflation outlook this year, Basci added.
Last year was a challenging year with geopolitical crises near Turkey’s borders and high food prices due to severe drought, Basci said. The bank expects growth to pick up in 2015 with a gradual increase in domestic demand.
