Hyperinflation comes to Turkey for Citigroup, ING
Hyperinflation has arrived in Turkey, according to foreign companies including Citigroup Inc. and Dutch bank ING, who now account for the phenomenon in their financial reporting.
Turkish consumer price inflation accelerated to an annual 79.6 percent in July, the Turkish Statistical Institute reported this week. That was the highest rate in emerging markets and developed economies. Independent measures of inflation for Istanbul and nationwide vary between 99.1 percent and 176 percent.
On Thursday, ING said it had accounted for hyperinflation in Turkey when reporting a decline in its first half profit. Citigroup said this week it was switching to the U.S. dollar for its accounting for its Turkish business, citing hyperinflation. It said in a regulatory filing that the change came into effect on April 1 after cumulative three-year inflation exceeded 100 percent.
"The Turkish economy is deemed to be hyperinflationary," Citigroup said. It added that the current pace of inflation was expected to continue in the near term.
Turkey published a government decree in January saying that hyperinflationary does not apply to financial reporting in the Turkish lira. ING said this week that it expected inflation in Turkey to hit between 85 percent and 90 percent by October. U.S. investment bank Goldman Sachs has made similar predictions.
Inflation in Turkey is surging after the central bank cut interest rates late last year on government orders. It then refused to reverse course despite global supply constraints, which have pushed up prices, and a further increase in energy costs caused by the war in Ukraine. Turkey imports nearly all the oil and natural gas that it consumes.
Turkey's lax monetary policy has led to a sell-off in the lira, which has lost 59 percent of its value since the start of 2021. The lira traded at 17.95 per dollar on Friday compared with 5.15 per dollar in January 2019.
Spanish bank BBVA and British mobile phone company Vodafone have also switched to hyperinflation accounting for Turkey. BBVA, which owns one of Turkey’s largest banks BBVA Garanti, made the announcement in June.