ANKARA
Turkey’s central bank raised its end-2023 inflation forecast sharply to 58.0%, its new governor, Hafize Gaye Erkan, said on Thursday in her first news conference, vowing to continue gradual monetary tightening.
The bank’s year-end forecast in its previous inflation report three months ago was 22.3%.
Speaking in Ankara, Erkan told the news conference that the bank’s inflation forecast for end-2025 was 15% and that it would continue to raise interest rates, as it has done in the last two months, alongside quantitative tightening.
“Until a significant improvement in the inflation outlook is achieved, we will gradually strengthen monetary tightening as and when necessary,” said Erkan, a former Wall Street banker who was appointed on June 9.
The biggest contribution to the sharp rise in the 2023 forecast came from forecasts deviations and a change in forecasting approach.
Erkan said the exchange rate of the lira, which has weakened sharply this year, pushing import prices higher, was also a main factor in the upward revision, with the end-2024 inflation prediction raised to 33% from 8.8%.
The central bank has hiked its policy rate (TRINT=ECI) by 900 basis points to 17.5% in the two meetings under Erkan, but the pace of tightening has remained below market expectations.
The bank has also begun to simplify macroprudential measures implemented under the former governor and has supported the rate hikes with qualitative and selective credit tightening.
“We also sterilize liquidity through quantitative tightening, thereby enhancing the effect of rate hikes… We are making the gradual and steady rate hikes more holistic and stronger through quantitative tightening and selective credit tightening,” Erkan said.
Is Portfoy executive vice president Nilufer Sezgin said the central bank’s forecasts were in line with market expectations, unlike in previous years when there were “serious differences”.
“The central bank did not only provide an inflation forecast that is in line with economists predictions but… the emphasis in the report very much matched those of the market. We had not seen this from the central bank in many years. This is an important and positive change,” she said.
Annual inflation fell to 38.21% in June, having peaked at a 24-year high of 85.5% in October last year but economists have revised their year-end forecasts to as high as 60%.
The lira traded at 26.9560 after the news conference, unchanged from the level beforehand. It has weakened 30% so far this year.
