Turkish inflation unexpectedly flat at 11.8 percent; lira gains

Turkey’s inflation was almost unchanged in September even the lira slumped to successive record lows and consumers borrowed at the fastest pace in more than a decade. The lira gained.

The annual consumer price inflation rate (CPI) inched down to 11.75 percent last month from 11.77 percent in August, the Turkish Statistical Institute said on Monday. CPI was expected at between 12.1 percent and 12.2 percent, according to three polls of economists conducted by Reuters, Bloomberg and the state-run Anadolu news agency.

The lira rose 0.5 percent to 7.73 per dollar after the data was released, reversing earlier losses.

The Turkish lira has lost almost a quarter of its value this year, slumping to a record low of 7.85 per dollar last week, as state-run banks led a splurge in lending to businesses and consumers and the central bank kept interest rates at below the rate of inflation.

Inflation in Turkey was expected to slow to between 11.7 percent and 11.9 percent by the end of the year, according to the surveys by Reuters and Anadolu. That compares with a government estimate of 10.5 percent, which was increased last week.

The central bank unexpectedly hiked its benchmark interest rate to 10.25 percent from 8.25 percent on Sept. 24, the first increase since a currency crisis in 2018. Monetary policymakers are using a so-called interest rate corridor to lend to banks at varying costs. The average cost of funding stood at 11.3 percent on Friday compared with 7.3 percent in July.

"It (inflation) shows the central bank has lots more work to do," Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London, said in e-mailed comments.

So-called core inflation, which excludes volatile items such as energy and food, accelerated to 11.3 percent from 11 percent in August. The producer price inflation rate rose to 14.3 percent from 11.5 percent, the statistics institute said.

Investors, who have sold Turkish assets this year, adding to the lira’s woes, are calling on the central bank to tighten and simplify its monetary policy to make it more effective and predictable. The central bank's highest lending rate - the so-called late liquidity window rate - stands at 13.25 percent.

The price of food, one of the largest components of Turkey's CPI calculations, increased by an annual 15 percent, up from 13.5 percent in August. Inflation in energy slowed to 6.8 percent from 9.6 percent. Clothing price increases eased to an annual 9.2 percent from 11.3 percent. Gains in housing costs also slowed.

(This story was updated with analyst comment in the seventh paragraph, details in last.)