Turkish inflation expectations ease after interest rate hikes

Turkey’s inflation rate is expected to drop to 10.59 percent in 12 months, according to a monthly survey by the central bank published on Friday.

Forecasts for inflation declined from 10.91 percent in a similar survey published in December.

Turkey’s central bank is seeking to tackle annual consumer price inflation of 14.6 percent with hikes to its benchmark interest rate. Monetary policymakers have more than doubled borrowing costs for banks to 17 percent since September to slow price increases and defend the lira.

The lira is expected to trade at 8.16 per dollar in 12 months, according to the survey, which included predictions of 89 professionals, including 67 from the finance industry. The average forecast declined from 8.32 per dollar last month.

The central bank is next due to meet on interest rates on Jan. 21. The bank has said that it will keep monetary policy tight this year to reduce inflation expectations and encourage Turks to switch their savings to liras from foreign currency.

The current account deficit was seen narrowing to $24 billion by the end of the year. Expectations increased from a previous $22.4 billion. The 12-month rolling deficit stood at $38 billion in November.

Turkey’s lira plumbed successive record lows against the dollar late last year, trading as weak as 8.58 per dollar in early November. That prompted Turkish President Recep Tayyip Erdoğan to sack and replace the central bank’s governor. The currency has since rallied to trade at around 7.4 per dollar.

A government-instigated lending boom, led by state-run banks, and rising demand for imports including gold widened the current account deficit to more than 5 percent of economic output last year, pressuring the value of the lira. Turks began exchanging their liras for dollars and euros to protect their savings, adding to pressure on the currency.

Turkey’s economy was expected to grow by 3.9 percent this year, according to the average prediction in the survey. The previous estimate for economic growth was 3.8 percent.