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Turkish inflation reaches its highest level in more than two years

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Turkish inflation hit its highest level in more than two years after easing pandemic restrictions last month boosted consumer spending, hampering the central bank’s efforts to meet consumer demand. President Recep Tayyip Erdogan to reduce interest rates.

Consumer prices rose 17.5 percent in June on an annual basis – the highest rate since May 2019 and well above the 16.8 percent forecast by analysts polled by Bloomberg. Home furnishings, food and beverage and hospitality have brought all the pace of rising prices, official statistics have shown.

Erdogan, who has called himself an “enemy” of interest rates, has renewed his call on the central bank in recent weeks to cut finance costs, saying he expects a reduction in July or August. . He fired the former central bank governor in March after raising rates by two percentage points; that innervated investors and the pound fell by more than 15 percent.

New Governor Sahap Kavcioglu, who shares Erdogan’s unconventional view that high rates drive inflation, has sought to calm investors ’concerns that it will alleviate monetary policy prematurely. He promised to keep Turkey’s benchmark rate above inflation, and has kept it at 19 percent in the last three tax-setting meetings. The monetary policy committee is due to meet again next week.

“In an ideal world, with an orthodox central bank that wants to lower inflation, it would almost certainly raise interest rates. But this is Turkey’s central bank, which is under political influence that has a heavy influence on policy making, ”said Jason Tuvey, economist for emerging markets at Capital Economics.

Erdogan wants lower interest rates to encourage more lending in an effort to boost the economy, which grew 7% annually in the first quarter of 2021.

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However Turkey’s economic recovery from the impact of the pandemic has failed to stem unemployment, which remains high at 14 percent. Voter turnout with the economy has sparked a record drop in support for Erdogan’s ruling party.

“Politically it has a lot of problems, as opinion polls suggest that its popularity is declining. You can see ways to reinforce that it is faster growth and job creation. But Turkey has already experienced one of the biggest recoveries. fast from u [coronavirus] crisis, ”Tuvey said.

Coronavirus cases in Turkey have dropped to about 4,400 a day and lifted a partial block and allowed restaurants and other businesses to reopen after intensifying their vaccine development.

Analysts expect Kavcioglu will struggle to cut interest rates in the coming months as inflation is not expected to cool, in part because the government has raised electricity and gas prices this month.

“July [prices] they appear to be even higher, given the costs of energy prices announced this past week. All of which makes the central bank’s forecast of 12.2 percent inflation at the end of the year look very optimistic, ”wrote Timothy Ash, BlueBay Asset Management strategist in a note to clients.


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