Türkiye has revised its year-end inflation targets upwards amid stubborn price pressures, which, to many analysts, signaled that disinflation will be slower from hereon.
Earlier in the day, Türkiye’s central bank announced an upward revision to its year-end inflation forecasts for 2024 and 2025, from previously 38 percent and 14 percent to 44 percent and 21 percent, respectively.
“Looking further ahead, we expect the inflation to decrease to 12 percent by the end of 2026,” said Central Bank Governor Fatih Karahan when presenting the fourth-quarter inflation report, noting that “the underlying trend in inflation is improving, but more slowly than expected.”
“Our disinflation process continues. Macroeconomic indicators are also in line with this process. We assess that domestic demand continues to decline and reaches levels that support disinflation. In accordance with this slowdown, the current account deficit continues to decline,” he added.
The central bank attributes the revised forecasts to various economic pressures and maintains that its cautious monetary policy will help curb inflation.
Türkiye has been grappling with high inflation amidst one of the worst cost-of-living crises in its history.
Since June 2023, the country has tightened its monetary policy significantly, with the central bank raising the key interest rate from 8.5 percent to 50 percent. The interest rate has been kept unchanged since March this year to allow the tightening to have an impact.
According to official data, Türkiye’s annual inflation rate eased to 48.58 percent in October, maintaining below 50 percent for the second consecutive month.
Meanwhile, official data issued on Monday showed that consumer prices went up 2.8 percent month-on-month in October, just under September’s 2.9 percent. The October figure, like that for September, was higher than expected.
Following the official release of October’s inflation rate on Monday, Türkiye’s Treasury and Finance Minister Mehmet Simsek wrote on social media platform X that “it takes time” to “remove rigidities,” adding that still, developments in this regard are “positive.”
“The decline in inflation is satisfactory, but there is still high inflation,” Orhan Turan, head of the Turkish Industry and Business Association, told the country’s free-to-air TV channel CNBC-e.
“The process is becoming more prolonged, and tensions are rising. I believe inflationary pressures will persist for some time,” he said.
In the view of Istanbul-based independent economist Mustafa Sonmez, the central bank struggles to bring down inflation as quickly as it wants.
“This was anticipated given recent data,” Sonmez told Xinhua, noting that the central bank had to adjust its forecasts to align more closely with market expectations.
“Monthly inflation is currently stuck around 3 percent, which is significantly high, and price increases will continue to be stubborn,” he said.
Noting the pace of disinflation has slowed down, Sonmez said, “The easy part is behind us, now, the decline will be less prominent.”
Türkiye has to engage in structural reforms to challenge income inequalities in order to be successful in disinflation, he added.
Atilla Yesilada, another economist from Istanbul, told Xinhua that the fresh inflation forecasts delayed an expected interest rate cut.
“It’s a bold and honest move from the bank” as it aligned with market expectations, he said. “No rate cuts will happen soon.”
Nevertheless, ING Group, an Amsterdam-based multinational banking and financial services corporation, still believes a rate cut may be forthcoming at the end of 2024.
“We think a measured cut in December is still on the table, despite a higher-than-expected October reading,” it said in a note to investors on Monday.