Turkey's Central Bank hikes year-end inflation forecast for next 3 years

ANKARA

Turkey's Central Bank on Thursday revised up its year-end inflation forecasts for the next three years while keeping its medium-term target constant at 5%.

The annual inflation rate is projected to reach 18.4% by the end of 2021, up from its previous forecast of 14.1%, the bank's governor told a meeting held to release the bank’s fourth quarterly inflation report.

The revision was mainly driven by higher import costs and food prices, Sahap Kavcioglu said.

The figure is expected to fluctuate between 17.3% and 19.5% through the end of this year, the governor said.

Pointing to the unfavorable effects of weather conditions on global food prices, Kavcioglu said food inflation remained elevated due to continued increases in international agricultural commodity and food prices, cumulative exchange rate effects, adverse weather conditions, supply constraints in certain products, and the reopening.

The bank also raised its forecast for food inflation to 23.4% for 2021 and 13.9% for the next year.

"Recent increase in inflation has been driven by supply-side factors such as rise in food and import prices, especially in energy and supply constraints, rise in administered prices and demand developments due to the reopening," he explained.

The bank's year-end inflation forecast for the next year was revised to 11.8%, up from 7.8%, the governor said, adding the inflation is expected to hit 7% by the end of 2023 before stabilizing at 5% in the medium term.

According to the latest data from the Turkish Statistical Institute, Turkey's annual inflation rate climbed to 19.58% in September.

The government, in its medium-term economic program last month, said annual inflation is projected to hit 16.2% by the end of 2021.

On the interest rates, Kavcioglu added that till the end of this year, supply-side transitory factors leave limited room for the downward adjustment to the policy rate.