Turkish inflation seen in single digits in Oct, poll shows

Cenbank has used ‘significant portion’ of space for loosening policy – governor

ISTANBUL, Nov 2, (RTRS): Turkey’s annual inflation is expected to have remained in single digits for a second consecutive month in October to stand at 8.6%, partly reflecting so-called base effects given high price increases a year ago, a Reuters poll showed on Friday.

Inflation surged to more than 25% in October 2018 in the wake of a currency crisis in which the lira plummeted against the dollar, but it has since declined due to higher interest rates and lagging economic activity.

In September the consumer price index (CPI) fell to single digits for the fist time in more than two years. For October the median estimate in a Reuters poll of 20 economists was 8.6%, with forecasts ranging between 9.5% and 7.7%.

Finance Minister Berat Albayrak said on Thursday inflation may fall to around 8% in October.

For the monthly rate, estimates of 19 economists ranged between 2.9% and 1.2%, with a median of 2.02%.

For the year as a whole – in this case based on responses from 16 economists – the average estimate has fallen to 12.3% from 13.3% last month. That’s after inflation is expected to return to double-digits in the last two months of the year as base effects wear off.

The Turkish Statistical Institute is due to announce October inflation data on Nov 4 at 0700 GMT.

Albaraka Turk economist Lutfullah Bingol said the downward trend in the annual CPI is expected to continue in October, partly due to food prices rising less quickly, though other factors meant prices rose more sharply month-onmonth than in September.

“The reason we expect a relatively high monthly inflation is the relative rigidity in the services inflation and seasonality, such as the prices hikes that come in October every year,” he said, referring to price hikes often made by companies around this time of year.

However Bingol added he had reduced his year-end estimate due to a continued general downward inflation trend stemming from lira stability and global factors arising especially from China.

The central bank on Thursday reduced its year-end estimate to 12% from 13.9% previously.

Turkey’s Central Bank has used a significant part of the space available for loosening monetary policy, Governor Murat Uysal said on Thursday, after the bank cut its key interest rate by 1,000 basis points in the last four months.

Uysal also said the bank had lowered its mid-point inflation forecast for end-2019 to 12% in its quarterly inflation report, down from 13.9% in the previous report. Analysts had predicted a reduction to 12% or lower.

Turkey’s currency crisis last year tipped the Middle East’s largest economy into recession and sent inflation soaring above 25%, prompting aggressive monetary tightening. Inflation eased to as low as 9.26% in September.

“I want to stress that ... at the point we have reached, we have used a significant portion of the space in the loosening direction,” Uysal told reporters at a news conference to present the bank’s quarterly inflation report.

The improvement in Turkey’s inflation outlook is continuing, with base effects, tight monetary policy and domestic demand also contributing to a fall in inflation, Uysal said.

He said a moderate recovery in economic activity was continuing, but with investment demand remaining weak and a weakening global demand outlook tempering external demand.

Consumer price inflation is expected to remain in single digits in October and rise in the last two months of 2019, he added.