Turkish Central Bank revises inflation forecasts

By Tuba Sahin

ANKARA

The Turkish Central Bank on Wednesday forecasted Turkey's year-end inflation rate to reach 23.5 percent.

"We projected the inflation rate to converge gradually to the target under the assumption of a tight monetary policy stance and enhanced policy coordination focused on bringing inflation down," Central Bank Governor Murat Cetinkaya said in a news conference in Istanbul ahead of the release of the bank’s quarterly inflation report.

The disinflationary effect of demand conditions is estimated to become more apparent next year, Cetinkaya said.

The bank also foresees year-end inflation for 2019 to reach 6.5 percent.

Cetinkaya said the inflation rate is expected to stabilize at the bank's medium-term target of 5 percent in the medium term after it drops to 9.3 percent by 2020's year-end.

He added the inflation rate would fluctuate between 21.9 percent and 25.1 percent through to the end of 2018.

The rise in the forecast has been driven by the upward revision in the projections of lira-denominated import prices, food inflation and inflation at third quarter in 2018, Cetinkaya noted.

According to Turkey's statistical authority on Oct. 3, the country's annual inflation reached 24.52 percent in September.

Pointing to the New Economic Program that indicated public finances would contribute to the macro rebalancing process with a tight fiscal policy, Cetinkaya said:

"The fact that the tight policy framework has been designed based on cutting down on expenses rather than increasing taxes will contribute to price stability."

Therefore, the bank assumed that support of the public sector for economic activity will be replaced by a balancing stance -- where the growth of spending and current transfers will decline and the prices and wages are controlled by the government -- he said.

Cetinkaya added that the food inflation rate was estimated to reach 29.5 percent in 2018 and 13 percent in 2019.

He said the bank would continue to use its all instruments to lower inflation and may introduce additional tightening in monetary policy if needed.