Turkey inflation expectations rise, underscoring challenge for central bank

Expectations for inflation in Turkey rose in a central bank survey, underlining the challenge monetary policymakers face in slowing price increases.

Inflation in 12 months is predicted to be 10.9 percent, the central bank said on Friday, citing the average estimate in the monthly poll of finance industry professionals and business leaders. The forecast stood at 10.8 percent in November.

Turkey’s central bank vowed this week to keep monetary policy tight through next year after annual consumer price inflation (CPI) accelerated to 14 percent in November from 11.9 percent. On Nov. 19, it raised the benchmark interest rate to 15 percent from 10.25 percent to help rein in price increases and defend the lira, which had fallen to successive record lows.

Year-end inflation was seen at 14.2 percent compared with a previous prediction of 12.5 percent, the central bank said. Inflation in 24 months was expected at 9.3 percent versus 9.2 percent forecast in November. The central bank’s medium-term target for CPI is 5 percent.

Turkish President Recep Tayyip Erdoğan sacked and replaced the governor of the central bank in the first week of November after the lira fell to a record low of 8.58 per dollar. He brought in former finance minister Naci Ağbal. The lira has since strengthened to trade at about 7.7 per dollar.

The lira, which has lost about a quarter of its value this year, was expected to weaken to 8.32 per dollar in 12 months, according to the survey. It was previously forecast to decline to 8.41 against the U.S. currency.