Turkish inflation hits 19.25%; lira at 9.87 to euro

Turkey’s annual consumer price inflation accelerated to 19.25 percent, extending the highest level since a currency crisis in 2018,  according to data published by the Turkish Statistical Institute on Friday.

The Turkish lira fell on the announcement, sliding to 9.87 to the euro and to 8.32 to the dollar.

August Inflation was up from 18.95 percent in July. The rate of inflation is now higher than the key rate of interest, exceeding the central bank’s rate of 19 percent. This means that the inflation increase brought Turkey’s real interest rate to negative 25 basis points.

The central bank is committed to maintaining the interest rate above the rate of inflation, but it is also under pressure from Turkish President Recep Tayyip Erdogan to reduce interest rates as soon as possible.

“It is not possible for inflation to accelerate further from now on, because we’re transiting to lower interest rates,” Erdogan told the press last month.

Central bank governor Sahap Kavcioglu is in a tight spot. “The ball is in the governor’s court now,” Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London, said in a tweet reported by Ahval. “He is a bit like a Turkish oil wrestler though when it comes to pinning him down on his promise to keep real policy rates positive.”

Annual producer price inflation is at a threatening 45.52 per cent from 44.92 percent in the previous month, TurkStat said.

Kavcioglu told investors Wednesday that price growth will enter a decelerating trend in the fourth quarter, according to a report from Bloomberg.

In a conference call with investors on Wednesday, Kavcioglu did not repeat a pledge to maintain a positive margin between interest rates and inflation, saying he expected price increases to slow in the fourth quarter of the year. Some investors may see that as a sign that the central bank would seek to avoid a hike,  Ahval reported.