Turkey Inflation Set to Fall

Consumer price inflation in Turkey is forecast to show a downward trend in the coming months thanks to recent monetary measures, said Central Bank Governor Murat Cetinkaya Wednesday.

“Pass-through from recent exchange rate developments may lead to upside inflationary pressures in the short term; yet, with the support of the tight monetary stance, inflation is expected to trend downwards by mid-year,” Cetinkaya said at conference held in the southwestern province of Denizli, in remarks posted on the central bank’s Twitter account, Anadolu Agency reported.

For the last four months the annual inflation rate has risen, going from 7% in November to 10.13% in February, the first time it has hit double digits in nearly five years.

Though the depreciation of the lira meant more expensive imported products and a price spike, after the rate declined prices are expected to retreat.

The US dollar to Turkish lira rate, which saw historic high of 3.942 in early January, fell below 3.60 after central bank measures such as cutting foreign exchange reserve requirement ratios, the establishment of a foreign exchange swap mechanism, and bypassing one-week repo auctions to tighten lira liquidity.

“Monetary tightening to contain the possible deterioration in the pricing behavior emanating from the recent exchange rate volatility has been largely effective,” Cetinkaya said, signaling that the central bank will take a wait-and-see attitude for now. But Cetinkaya warned that global uncertainty requires a cautious monetary policy stance and that the central bank is ready to implement further tightening if there is deterioration in pricing behavior.

The bank “remains focused on the main goal of price stability. All policy instruments will be used effectively to attain this objective,” he added.