Turkish central bank says inflation may exceed expectations this summer-sources
ISTANBUL (Reuters) -Turkish Central Bank Governor Sahap Kavcioglu said on Friday inflation could rise higher than expected this month and next, but that monthly moves do not affect its year-end forecast, according to two sources who participated in an investors meeting.
In his speech, Kavcioglu said the bank was sticking to the path outlined in its April report, in which it forecast that inflation would fall to 12.2% by year-end, the sources said.
Kavcioglu also said the policy rate would be set above actual and expected inflation until indicators point to a lasting fall, the people said.
Turkey’s inflation unexpectedly fell to 16.59% in May due to the COVID-19 lockdown, but according to a Reuters poll it is expected to rise to 17% again in June. The data is scheduled for release on July 5.
Kavcioglu also said the bank maintained its outlook for inflation to show a marked fall at the start of the fourth quarter at the latest, sources said.
The independence of the central bank has been a main concern for investors in recent years, given that President Tayyip Erdogan, a self-described “enemy” of interest rates, abruptly sacked the last three governors.
Asked whether the current inflation outlook could require a hike to the policy rate currently at 19%, Kavcioglu said the current inflation path does not indicate such a need, according to two sources.
But the governor also added that the monetary committee policy would take the necessary decision in case of a surprise development.
The Turkish lira has lost more than 14% of its value so far this year, stoking inflation through imported goods. The central bank’s year-end inflation forecast of 12.2% is still well below the median market expectation of 15%, according to the latest Reuters poll.
Kavcioglu also said during the meeting that it was close a swap deal with some other central banks, the sources said.
Reuters reported last week that Turkey has ramped up talks with other countries over securing a currency swap agreement and a deal with Azerbaijan looks likely to be the first achieved.
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