Turkey central bank lifts year-end inflation forecast to 9.8 percent

Bloomberg

Turkey’s central bank Governor Murat Cetinkaya said on Wednesday that he expects inflation to accelerate in October and November, driven by a weaker currency and rising oil prices, before the rate starts to ease a month later. The lira declined on the comments.
The central bank revised
its year-end inflation forecast to 9.8 percent from 8.7 percent three months earlier mainly due to the lira’s recent decline, Cetinkaya said in Istanbul. The removal of some tax breaks in September, and a rise in the costs of energy imports will also weigh on consumer prices, he told reporters.
The governor reiterated his pledge to maintain the bank’s tight monetary policy until he sees “convincing” declines in both headline and core inflation figures, which are both more than twice as high as the bank’s 5 percent official target. October’s inflation data is set to be released on Friday, with a Bloomberg survey showing economists expect prices to rise 11.5 percent.
Some analysts criticized Cetinkaya’s expectations of the path the inflation rate will take as too optimistic, and the lira weakened on his warning that investors should be prepared for prices to deliver an unwelcome “surprise.”
“What the governor’s speech signaled today is policy inaction in the near term,” said Inan Demir, a strategist at Nomura in London. “This leaves the lira exposed to risks stemming from higher inflation, changes in global sentiment or politically driven external financing issues.”
The lira extended declines after the governor’s remarks and was trading 0.8 percent lower at 3.8234 per dollar at 12:40 p.m. in Istanbul, the worst performance among 24 emerging-market currencies tracked by Bloomberg.
Cetinkaya, speaking at the press conference where he announced the bank’s last quarterly inflation report of the year, amended his forward guidance on the expected trajectory of price gains. In addition to his long-held view that both headline inflation and expectations would start a rapid recovery at the end of this year, he said that recent declines in the currency and a rise in global energy prices were creating headwinds for policy makers.