Turkey Raises Inflation Target, Dashing Hope for Early Easing

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Turkey raised its year-end inflation estimate in the newly unveiled three-year economic program, leaving its central bank with less room for a possible monetary easing this year.

Consumer-price inflation will finish 2021 at 16.2%, according to the Treasury and Finance Ministry, compared with a July forecast of 14.1% by the central bank. 

The move comes as a surprise jump in inflation in the past week pushed the nation’s benchmark interest rate adjusted for price growth into negative territory for the first time since October, dealing a blow to President Recep Tayyip Erdogan’s hopes for an early cut in borrowing costs.

Prices rose for a third month to an annual 19.25% in August. The central bank had pledged to keep the benchmark above inflation but has faced calls from Erdogan to deliver a rate cut as early as this month.

Other highlights in the Treasury and Finance Ministry’s Medium Term Program include:

• A forecast for inflation slowing to 9.8% in 2022 and 8% in 2023
• GDP growth seen at 9% this year and 5% next year while current-account deficit to GDP ratio is expected to be at 2.6% in 2021 and 2.2% in 2022
• Government sees budget gap to GDP ratio at 3.5% in 2021 and 2022, 3.2% in 2023
• Unemployment rate is seen at 12.6% this year and it’s expected to decline to 12% next year

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