Turkish central bank more than doubles inflation forecast to 58 pct for 2023

ANKARA, July 28: Türkiye's central bank revised its year-end inflation forecast to 58 percent, its governor said on Thursday. The bank's previous forecast in May was 22.3 percent.

The bank's new governor Hafize Gaye Erkan explained that the inflation will temporarily increase due to exchange rate and financial measures, and her bank would continue the monetary tightening process until "a significant improvement in inflation is achieved."

Although the inflation will rise temporarily in the short term, they are laying the groundwork for the start of disinflation in 2024, she said, adding that the bank sees 2025 as the beginning of the period of stability.

Erkan said that the bank revised its medium-term inflation targets to 33 percent by year-end of 2024 (up from 8.8 percent), and aimed to lower it to 15 percent by 2025.

After Turkish President Recep Tayyip Erdogan won re-election in late May, he appointed the former U.S.-based bank executive as the central bank governor, and Mehmet Simsek, a well-known former banker, as the treasury and finance minister to regain investor confidence and bolster foreign investment flow to ease Türkiye's foreign exchange crunch.

The annual inflation in Türkiye eased to 38.2 percent in June, down from a 24-year peak of 85.5 percent in October 2022. However, a new inflation rise is expected following fresh tax rises introduced in July to support the budget squeezed by pre-election expenses.

Türkiye's central bank on July 20 delivered a second interest rate hike in two months, to 17.5 percent, to fight high inflation, a new sign of adherence to orthodox monetary policies.