Türkiye's Central Bank revises up inflation forecasts

Türkiye's Central Bank on Thursday revised its year-end inflation forecast upwards for 2023, 2024 and 2025.

The annual consumer inflation is projected to hit 58% this year, revised 35.7 points up from the previous forecast, Governor Hafize Gaye Erkan told a meeting held to release the bank's third quarterly inflation report this year.

The end-2024 forecast was raised to 33% from the previous projection of 8.8% and end-2025 forecast to 15% from 5%, Erkan noted.

The upward revisions were due to Turkish lira-denominated import prices, output gap, food prices, administered prices and unit labor cost and forecast deviation and change in forecasting approach.

"Compared to the previous reporting period, developments in lira-denominated import prices pushed our year-end inflation forecasts for 2023 and 2024 up by 7.5 and 8.3 points, respectively. This was mainly driven by exchange rate developments," Erkan explained.

Food prices added 8.5 percentage points for 2023, and 6.0 percentage points for 2024 to the bank's forecasts, she stressed.

"Changes made to other economic policies, such as transfers to households, taxes, wages and administered price adjustments, raised the end-2023 inflation forecast by 7.5 points and end-2024 inflation forecast up by 3.6 points."

The stronger-than-expected domestic demand pushed the year-end inflation forecasts up by 1.3 points for 2023 and by 0.4 points for 2024, Erkan noted.

"Lastly, the effects of forecast deviations and the change in forecasting approach added 10.9 and 5.9 points to our year-end forecasts for 2023 and 2024, respectively," she said.

While gradually raising the policy rate, the bank is committed to boost the functionality of market mechanisms through the simplification process with a view to enabling market rates to become more aligned with inflation expectations, the governor said.

Erkan underlined that the bank will continue to take stabilizing steps that target inflation through selective credit tightening and aims to ensure stable development in the Turkish lira liquidity without generating excessiveness in exchange rates and domestic demand.

"The Central Bank will make decisions based entirely on data and in complete coordination in line with the principles of confidence, stability and transparency," she said.