Turkish CB raises 2017 inflation forecast to 8.5 pct

Revision of estimation of lira-denominated import prices, output gap and trend of higher inflation rate affect forecast.

Turkey's Central Bank raised its inflation forecast for 2017 to 8.5 percent on Friday, citing upward revision of lira-denominated import prices, and output gap along with higher-than projected inflation in the first quarter and upward trend of inflation rate, according to Anadolu Agency.

"Inflation is likely to be 8.5 percent at the end of 2017, and fall to 6.4 percent in 2018 before stabilizing at around 5 percent in the medium term," Governor Murat Cetinkaya said at a news conference held to announce the second inflation report of the bank.

"Given a tight policy stance that focuses on bringing inflation down, inflation is estimated to converge gradually to the 5 percent target," Cetinkaya said.

Cetinkaya forecasted year-end inflation for 2018 to be between 4.6 percent and 8.2 percent with a mid-point of 6.4 percent.

"Turkey also has received more portfolio inflows recently. Short-term interest rates continued to edge up due to monetary tightening, while the slope of the yield curve reversed and the Turkish lira witnessed lower levels and reduced volatility," he said. 

Core inflation increased in the first quarter of 2017, while non-core items such as unprocessed food, energy and alcohol and tobacco products provided a significantly larger contribution to inflation, he added. 

Cetinkaya said that the upsurge in exports of goods as well as the accommodative incentives and measures were likely to help economic recovery strengthen from the second quarter onwards.

"In recent years, sustained fiscal discipline has been one of the key factors in lowering the sensitivity of the Turkish economy to external shocks. Countercyclical fiscal policy has been implemented recently, thanks to the space provided by fiscal discipline," he added.

Structural measures would contribute to the coordination of monetary and fiscal policy, and thus support macroeconomic stability, Cetinkaya said.


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