Central Bank expects inflation to peak in May

The Governor of the Central Bank of Turkey Fatih Karahan estimated on Thursday that inflation will begin to fall in June, and revised his forecast for the end of the year slightly upwards, to 38%.

The rise in consumer prices accelerated in April, reaching 69.8% year-on-year. During the process of disinflation that we will experience from June, we will continue to do everything necessary to reduce inflation in accordance with the intermediate objectives that we have set for ourselves, indicated Mr. Karahan in presenting his second quarterly report.

Even though the underlying trend in inflation has declined, it has remained above the trajectory we predicted in the first inflation report of the year, last February, acknowledged the governor which suggests a new increase in May. Therefore, we have updated the inflation forecast for the end of 2024 to 38% from 36% previously.

The dizzying rise in consumer prices and the weakening of the Turkish lira against the dollar and the euro are considered responsible for the severe electoral setback inflicted on President Recep Tayyip Erdogan and his party, the AKP, during the municipal elections of March 31.

We have maintained our forecasts for 2025 and 2026 at 14% and 9% respectively. In the medium term, we are aiming to stabilize inflation at 5%, continued the governor. The report highlights particularly high price increases in the services sector in April over the year, including 124.5% for rents; 100.8% for transport services and 95.8% in the hotel and catering industry or even 103.9% in private education.

The central bank therefore intends to continue its monetary tightening policy begun in June 2023, after the re-election of Mr. Erdogan, pushing its main key rate from 8.5% to 50% last month. We are determined to maintain our restrictive monetary policy until inflation falls back to levels consistent with our objectives, Mr. Karahan warned.

Mr. Erdogan, in power since 2003, as Prime Minister then as President, has long been hostile to high interest rates which he considers contrary to Islam. But the surge in consumer prices, up to 85.5% officially at the end of 2022, forced it to accept the return of a more orthodox monetary policy.

In London, British analyst Timothy Ash, a specialist in emerging markets and Turkey, welcomed a realistic, credible and combative report. Do not rule out further increases (in the key rate), this is absolutely the right message, he added on X. Turkey once again has an adequate central bank. A group of independent Turkish economists (Enag) estimates inflation at more than 124% over one year in April, up 5 points over one month.

source site-96