Economy Minister Nihat Zeybekci said yesterday that the necessary measures would be taken to control food inflation. In addition, the Central Bank of the Republic of Turkey (CBRT) will relieve the situation further by taking steps to cut interest rates.
In the written statement by Zeybekci, he said he believes that significant improvements will be achieved in terms of fighting inflation, and this will pave the way for further interest rate cuts for the CBRT and will subsequently lead the banking system's credit supply to expand.
According to the latest data released by the Turkish Statistical Institute (TurkStat), Turkey's consumer price index (CPI) increased by 1.16 percent in June, high above the forecast, while the producer price index increased by 0.21 percent with annual inflation at 8.79 percent. Prices rose by 4.84 percent compared to December 2015 and 7.91 percent on a 12 months moving averages basis.
The highest monthly increase was in the alcoholic beverages and tobacco category with 7.05 percent. Prices increased in the food and non-alcoholic beverages category by 3.15 percent, communications by 1.38 percent, miscellaneous goods and services by 1.31 percent and hotels, cafes and restaurants by 1.22 percent.
According to the government's Medium-Term Economic Program, inflation is to reach 7.5 percent by the end of this year. CBRT Governor Murat Çetinkaya said on July 26 that the inflation rate would fluctuate between 6.6 percent and 8.4 percent throughout 2016. "The midpoint in 2016 will be 7.5 percent and 6 percent in 2017," Çetinkaya said. Meanwhile, on Tuesday, the CBRT continued a series of interest rate cuts with an additional 25 base-point cut in the upper band of the interest rate corridor to 8.5 percent in line with market expectations. The CBRT also held the policy rate (one-week repurchase agreement rate) at 7.5 percent and the lower band of the corridor (borrowing rate) at 7.25 percent. This means the CBRT lowered the upper band by 2.25 percentage points in the first half of 2016. With this latest move, the CBRT created the narrowest gap since 2010 in the interest rate corridor, which it has long used as leverage.