Turkey central bank cuts 2019 inflation forecast

Turkey central bank cuts 2019 inflation forecast

Turkey :The Turkish central bank on Wednesday cut its 2019 inflation forecast to over 14 percent while vowing to keep a tight monetary stance until current fast rising prices fall back.

Consumer price inflation spiked to a 15-year high in October 2018 of over 25 percent before falling to 20.3 percent in December, hitting consumers hard as the Turkish lira also weakened.

The central bank said in its latest report that inflation was “likely to be 14.6 percent” at the end of 2019, down from the 15.2 percent estimate given in October.

After the announcement in Ankara during a presentation by Governor Murat Cetinkaya, the lira hit 5.28 against the US dollar after 0830 GMT, a gain of 0.5 percent on the day.

The lira lost 28 percent of its value against the dollar in 2018.

The inflation forecast for 2020 also was cut to 8.2 percent from 9.3 percent and the central bank said it hopes price rises will stabilise at “around five percent the medium term”.

The bank, which has a nominal inflation target of five percent, kept the food inflation estimate for 2019 at 13 percent.

The downward revisions come after oil price falls, improved inflation figures and the strengthening of the lira since the middle of last year.

The bank’s monetary policy committee earlier this month kept its policy interest rate, the one-week repo rate, unchanged for a third time at 24 percent.

After a currency crisis in August caused by a US-Turkey diplomatic row and concerns over domestic monetary policy, the bank hiked the rate sharply by 625 basis points to 24 percent.

Cetinkaya struck a defiant tone on Wednesday when he said that “until there is a convincing fall in inflation, we will continue our tight monetary stance”.

He added that if necessary, there could even be further tightening.

There have been concerns among investors over the bank’s independence and ability to maintain such a stance as President Recep Tayyip Erdogan opposes high interest rates.

Erdogan has previously referred to interest rates as “the mother and father of all evil”, going against economic orthodoxy to argue that high rates cause high inflation, not the other way round.