ALBAWABA – Efforts to reverse the effects of Turkish President Recep Tayyip’s unorthodox monetary policies on tethering Turkey’s weakening Lira are barely starting to reap tangible results in terms of inflation, news agencies reported Wednesday.
Turkey's annual inflation rate slowed to 38.2 percent in June, official data showed, though economists warned that it may rise towards the end of the year. Having slowed from 39.6 percent in May, according to the Turkish Statistical Institute.
Bloomberg’s analysts expect inflation to accelerate past 40 percent again by the end of 2023 and all throughout the entire first half of 2024.
At the current rate, given the sluggish recovery of Turkey’s lira, Bloomberg Economics have revised Turkey’s year-end call to 47 percent from 43 percent.
The recent collapse of the currency marks one of the worst low stretches in decades for the Lira, as it stands in the way of the new government team’s work to curb high inflation.
Turkey’s weakening lira has lost nearly a quarter of its value since Erdogan’s re-election last month.
Though the currency’s steep declines did not completely break the disinflation momentum in May through June, depreciation is stirring up price pressures, the New York-based news agency explained.
Erdogan’s government just recently announced an interim minimum wage hike of 34 percent, which is expected to add to price pressures.
“The impact of strong base effects” from last year was “offset by sharp lira depreciation following the elections,” Goldman Sachs Group Inc. economists including Basak Edizgil said in a report carried by Bloomberg.
“Although policy has turned tighter since the elections, further FX weakness is likely to aggravate core inflation going forward,” the report said.
“Looking ahead, we expect government policies and the sharp lira depreciation to result in the inflation rate climbing again,” Bloomberg Economics said.
“In our view, price gains will accelerate toward a year-end rate of 47 percent, even after the central bank’s policy pivot to lifting borrowing costs.”
Turkey’s central bank increased the country’s benchmark interest rate to 15 percent from 8.5 percent and lowered maintenance rates, in an effort to tighten the noose on runaway inflation.
However, the decision did not reap the forecast result, in terms of scale of expected disinflation.
Price stability will prove elusive today, as two former Wall Street bankers take charge of the economy to undo years of complex regulations and fringe policies. Policies that kept Turkey’s lira in check by burning through central bank reserves.
