Turkey’s Central Bank more than doubles inflation forecast to 58 pct by end of year

Duvar English

Turkey’s Central Bank Governor Hafize Gaye Erkan on July 27 announced the third inflation report of the year and stated that they increased their year-end inflation forecast from 22 percent from the previous period to 58 percent.

The bank also updated the 2024 year-end forecast to 33 percent, and it expected a fall to 15 percent at the end of 2025.

Erkan stated that inflation would show a temporary rise in the short term and added, “We will continue to decisively use all our tools in line with the main objective of price stability. Accordingly, in addition to the rate hike, we have taken decisions on selective credit tightening and quantitative tightening to support the monetary tightening process, and will continue to do so.” 

The bank on June 20 increased its policy rate by 250 basis points, bringing it to 17.5%. This marks the highest rate recorded since October 2021 as the country’s new economic administration abandoned President Recep Tayyip Erdoğan's low-rates policy. 

Erkan stated that inflation declined to 38.2 percent as of June from its peak of 85.5 percent in October and that the stability in the exchange rate and the decline in global commodity prices were effective in this development.

The lira traded at 26.96 against the dollar as of July 27 and it has weakened nearly 30% so far this year. Turkey's Inflation Research Group (ENAG), founded by a group of independent academics, announced the country's annual inflation rate as 108.58 percent in June.

Erkan also stated that increases in wages and rents have an impact on staggering inflation. The government in June increased the minimum wage and salaries of civil servants and pensioners along with many tax items such as special consumption tax (ÖTV) and value-added tax (KDV).

Economist Hayri Kozanoğlu reminded that the inflation in the first six months of the year was 19.77 percent, and added “This means that prices will increase by 31.9% in the last six months of this year. An average monthly increase of 5.4% is expected. If the exchange rate increases in line with inflation, the lira will be traded at 36  against the dollar!”