PROGNOSIS

TURKISH CENTRAL BANK REVISES INFLATION FORECASTS

Dünya Executive - - OVERVIEW -

The Turkish Central Bank on October 31 forecasted Turkey’s year-end inflation rate to reach 23.5 percent. “We projected the inflation rate to converge gradually to the target under the assumption of a tight monetary policy stance and enhanced policy coordinati­on focused on bringing inflation down,” Central Bank Governor Murat Cetinkaya said in a news conference in Istanbul ahead of the release of the Bank’s quarterly inflation report.

The disinflati­onary effect of demand conditions is estimated to become more apparent next year, Cetinkaya said. The bank also foresees year-end inflation for 2019 reaching 6.5 percent. Cetinkaya said the inflation rate is expected to stabilize around the Bank’s target of 5 percent in the medium term after it drops to 9.3 percent by year-end 2020. He added the inflation rate would fluctuate between 21.9 percent and 25.1 percent through to the end of 2018.

The rise in the forecast has been driven by the upward revision in the projection­s of liradenomi­nated import prices, food inflation and inflation in the third quarter of 2018, Cetinkaya noted. According to Turkey’s statistica­l authority, on October 3 the country’s annual inflation reached 24.52 percent in September.

Pointing to the New Economic Program, Cetinkaya noted thatpublic finances would contribute to the macro rebalancin­g process with a tight fiscal policy. “The fact that the tight policy framework has been designed based on cutting down on expenses rather than increasing taxes will contribute to price stability,” he said.

Therefore, the Bank assumes that support for the public sector for economic activity will be replaced by a balancing stance - where the growth of spending and current transfers will decline and prices and wages will be controlled by the government, he added.

Cetinkaya conceded that food inflation rate is estimated to reach 29.5 percent in 2018 and 13 percent in 2019. He said the Bank would continue to use all instrument­s to lower inflation and may introduce additional tightening in monetary policy if needed.

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