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The Central Bank of Turkey on Nov. 1 raised Turkey’s year-end inflation forecast from 8.7% to 9.8% amid increasing oil prices and depreciation in the Turkish lira. Speaking at a news conference in capital Ankara ahead of the release of the bank’s quarterly inflation report, Governor Murat Cetinkaya said price stability was vital and level of caution in the bank’s monetary policy would be strengthened “if needed.” “The bank’s tight monetary policy stance will be maintained decisively,” he said. The governor said the inflation rate will fluctuate between 9.3% and 10.3% through to the end of 2017. He said the mid-point would be 9.8% in 2017, up from 8.7% in the previous forecast. “The rise in oil prices and the depreciation of the Turkish lira elevated the cost pressures in the third quarter,” he said. The central bank also increased its mid-point forecast for 2018-end inflation to 7% from 6.4% in its July report. “Inflation is likely to be 9.8% at end-2017, and stabilize around 5% in the medium term after falling to 7% in 2018 and 6% in 2019,” he said.

Tight monetary policy

For the upward revision of 0.5 percentage points came from import prices and 0.4 percentage points came from the output gap on stronger economic growth, Cetinkaya said. He said the country’s annual core goods inflation increased due to the Turkish lira’s depreciation against the foreign currency such as the US dollar and euro.

On Oct.26, the bank kept its overnight lending rate, the highest of the multiple rates it uses to set policy, one-week repo rate, the marginal funding and overnight borrowing rates were also unchanged at 9.25% and 7.25%, respectively. “Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement and becomes consistent with the targets,” the bank added in its inflation report.

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