Turkish Inflation Likely Rose for a Seventh Month as Lira Slid


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Turkish inflation probably accelerated for a seventh month in April as a weak lira and rising global energy prices compounded the impact of a low base a year ago.

Data due Monday will show consumer prices rose an annual 17.3%, up from 16.2% in the previous month, according to the median estimate in a Bloomberg survey of 16 analysts, all of whom predicted an acceleration. Inflation slowed in April 2020 as the intensifying pandemic led to cheaper oil and slowing economies.

Turkish Inflation Likely Rose for a Seventh Month as Lira Slid

Key Insights

Inflation’s upward trend is leaving new central bank Governor Sahap Kavcioglu with little room to enact the interest-rate cuts sought by President Recep Tayyip Erdogan, who holds the unorthodox view that high interest rates cause prices to rise.

Kavcioglu is Turkey’s fourth central bank chief since 2018, with his predecessor sacked by Erdogan after overseeing a 200-basis-point hike in the benchmark. He left rates unchanged in his first monetary policy meeting but removed a pledge to deliver additional tightening. Raising inflation forecasts last week, former banking professor Kavcioglu pledged to maintain a tight stance with “determination and patience.”

Despite his market-friendly comments, the lira has weakened more than 12% against the dollar since he took over at the bank on March 20.

What Economists Say

Central bank expectations for inflation to peak in April, remain above 16% until the third quarter, and fall to 12.2% by the end of the year are “in line with our forecast path,” Yarkin Cebeci, a London-based economist at JPMorgan Chase & Co. wrote in a note. JPMorgan sees inflation at 13.4% in the last quarter, and the next policy interest rate cut in September.

Morgan Stanley analysts including Alina Slyusarchuk and Andrea Masia in London expect price growth to head upwards. “We see no easing and hence have the key rate on hold until” the fourth quarter, they said in a note. “We expect inflation to accelerate to 18.7% in April and remain around 19% through summer” due to the weaker lira and other pressures.

Rate Comments

The central bank’s next rates meeting is scheduled for May 6. Kavcioglu told Bloomberg in his first interview after being appointed that he doesn’t “approve a prejudiced approach to MPC in April and or the following months, that a rate cut will be delivered immediately.”

He pledged to offer a positive real rate when adjusted for inflation and maintain tight policy until the bank’s 5% inflation target is achieved.

©2021 Bloomberg L.P.

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