Turkey almost doubles inflation forecast, sparking economists’ disdain
Turkey’s central bank almost doubled its year-end inflation forecast after it refused to raise interest rates despite a surge in prices. Economists voiced increasing frustration over the course of monetary policy.
Consumer price inflation is expected to be 42.8 percent in December, central bank governor Şahap Kavcıoğlu said at a televised presentation in Ankara on Thursday. The bank’s previous forecast, made three months ago, was 23.2 percent. Turkey’s medium-term inflation goal is 5 percent.
Turkey should not raise interest rates just because other central banks around the world are doing so, Kavcıoğlu said at the presentation of the bank’s quarterly inflation report.
“We are trying to make decisions by creating policies unique to our country,” he said. “We take our inflation problem very seriously. All stakeholders are working very hard… Let our people trust us, we will ensure permanent price stability as soon as possible.”
The central bank cut interest rates to 14 percent from 19 percent between October and December last year, acting on the orders of President Recep Tayyip Erdoğan, who says higher rates are inflationary. It then left borrowing costs unchanged this year even as inflation soared to the highest levels in two decades. Consumer price inflation hit 61.1 percent in March, the fastest in major emerging markets and industrialised economies.
The bank is now focused on measures to encourage savings and transactions in the lira, which lost 44 percent of its value last year.
“At this stage, the central bank forecasts are a complete joke, not worth the paper they are written on,” said Tim Ash, a senior emerging markets strategist at hedge fund BlueBay Asset Management in London.
Erdoğan, who says his Islamic belief preclude him from approving rate hikes, has sacked three central bank governors in the past three years. He has also replaced five of the six members of the bank’s monetary policy committee, three of them in October.
“I decided to turn the television off and save some electricity,” said Tufan Cömert, veteran economist and director of research at Garanti Securities in Istanbul.
Kavcıoğlu, a former economics professor with no central bank experience, was hired by Erdoğan in March last year.
“Right now, I can guess that the central bank researchers, who are preparing the inflation report, have a sore jaw from clenching their teeth,” said Hakan Kara, a former chief economist at the central bank, said on Twitter.