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.

FILE PHOTO: Turkey’s Central Bank headquarters is seen in Ankara, Turkey in this January 24, 2014 file photo. REUTERS/Umit Bektas

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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