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Turkish inflation jumps to 16.19%

Erdogan Points The Finger At High Interest Rates
Tayyip Erdogan

Turkey’s inflation jumped to 16.19 per cent in March, the Turkish Statistical Institute announced on Monday, rising for a sixth straight month after the sharp decline of the lira.

The lira is currently at 9.61 to the euro and is expected to fall further today.

The lira lost nearly 11 per cent of its value in March, in a selloff that sharpened dramatically after President Tayyip Erdogan sacked the hawkish former Central Bank Governor Naci Agbal because Agbal raised interest rates. Erdogan continues to control the central bank and reportedly intends to push for an interest rate cut on April 15.

Stoked by concerns that the central bank would revert to unorthodox policies under the new management and cut rates prematurely from 19 per cent, the lira’s depreciation has in fact lead to the rise in inflation in March.

Prices in import-dependent Turkey are sensitive to rises in the exchange rate.

Adding to the upward pressure on inflation are high food prices and oil prices that remained elevated for most of the month.

The median estimate of 16 economists in the Reuters poll for annual inflation in March stood at 16.11 per cent, with estimates ranging between 15.92 per cent and 16.97 per cent.

For the month-on-month rise, the median estimate stood at 1.04%, with forecasts ranging between 0.83% and 1.75%.

Inflation stood at 15.61 per cent in February, its highest level since mid-2019.

Inflation expectations for coming months will likely have to be revised up depending on how far the lira weakens, said Ozlem Derici Sengul, founding partner at Spinn Consulting.

“When financial stability deteriorates, it adds another burden. The way to contain that is to raise rates further, so the central bank’s approach on this point will be important,” Derici Sengul said.

“We have doubts about whether the new management will maintain tight monetary policy for long enough,” she added.

The median estimate of nine economists that participated in the Reuters poll for inflation at year-end stood at 12.15 per cent, with forecasts ranging between 10.20 per cent and 15.00 per cent.

That compares to the central bank’s forecast of 9.4 per cent.

Governor Sahap Kavcioglu said on Monday that current elevated levels of inflation require tight monetary policy, pledging to keep the bank’s key interest rate above inflation until it was clearly on a permanent downward path.

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