Economy

Turkey inflation to hit a bump as central bank tees up rate cuts

TCMB/Bloomberg

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Policymakers expect the disinflationary momentum to strengthen again in the coming months thanks to base effects, with the latest projections showing price growth will slow more than previously forecast and end the year at 13.9 per cent.

Tuesday 06, August 2019

A slowdown in Turkish inflation probably took a pause as the government rebuilds its coffers with higher taxes while the central bank loosens monetary policy, reported Bloomberg.

The setback may prove to be little more than a blip, driven mainly by electricity price increases and the phasing out of a tax cut on automobiles.

The central bank is waiting for the downswing to resume as it cuts interest rates for the first time in three years under new Governor Murat Uysal.

Despite the deceleration, and President Recep Tayyip Erdogan’s calls for steeper rate cuts, Uysal has vowed to preserve ‘a reasonable rate of real return’ for investors. At his first meeting in charge of the central bank, the Monetary Policy Committee slashed the benchmark borrowing rate by 425 basis points, the most in at least 17 years, to 19.75 per cent.

At just over 400 basis points, Turkey’s real rate is now around 70 basis points above the average for major emerging markets. If inflation goes up in line with forecasts in July, the interest rate adjusted for inflation would be lower by about 100 basis points.

TAGS : Turkish inflation, higher taxes, Monetary Policy Committee, President Recep Tayyip Erdogan, Governor Murat Uysal.

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