Turkey’s end-year inflation expectations reach 24.22% in October

Turkey’s end-year inflation expectations reach 24.22% in October
By bne IntelliNews October 18, 2018

Expectations for Turkey's end-2018 inflation rate rose to 24.22% in October from 19.61% in September, the central bank’s regular survey of businesses and analysts showed on October 18.

Participants of the survey also expected the central bank’s weighted average cost of funding (WACF) to increase from the current 24% to 24.12% in the three months ahead. The central bank has been funding local lenders at its main policy rate (one-week repo rate) of 24% since September 14.

Turkey’s annual consumer price inflation rate sprang from 17.9% in August to 24.52% in September, the Turkish Statistical Institute (TUIK) announced on October 3. The figure marked the highest level recorded since the end of 2003 and came in at a worse level than all expectations.

The annual producer price index (PPI) recorded a jump from 32.13% in August to 46.15% in September, the highest level seen since 2002, TUIK said in a separate statement.

On October 9, Turkish President Recep Tayyip Erdogan’s son-in-law and  Finance Minister Berat Albayrak, outlined the government’s latest measures in its “All-Out War on Inflation Programme”. Emerging markets senior economist at Capital Economics, Jason Tuvey, said in a note that the “plan lacked any serious punch”.

Unnerving investors
Turkey's move to declare war on runaway inflation by calling on the country's businesses to cut retail prices by 10% for two months was unnerving investors, VOA reported on October 10.

The IMF’s latest World Economic Outlook forecast Turkey’s inflation at 20% at the end of this year.

Central bank survey respondents also said that they expected the USD-TRY rate to be 5.7472 at the end of this year, a significant strengthening from the 6.4620 anticipated in the September survey. The anticipated rate represents a significant strengthening on the previous forecast but it is negative at the same time for demonstrating high volatility. 

Respondents also forecast that GDP growth would be 3.2% this year; that represented a decline from 3.4% in September.

The IMF has cut its growth outlook for Turkey to 3.5% in 2018 from its previous anticipated 4.2%.

According to the central bank survey, Turkey’s end-2018 current account deficit expectations declined to $40.7bn in October from $49.7bn in September amid the economic rebalancing brought about by Turkey's big fall in consumer demand amid the country's financial turmoil.