Turkey's central bank raises 2017 inflation forecast to 8.5 pct

The Central Bank of the Republic of Turkey (CBRT) raised its inflation forecast for 2017 to 8.5 percent on Friday, citing an upward revision of lira-denominated import prices and the output gap along with higher-than projected inflation in the first quarter and an upward trend in the inflation rate.

"Inflation is likely to be 8.5 percent at the end of 2017 and fall to 6.4 percent in 2018 before stabilizing at around 5 percent in the medium term," Governor Murat Çetinkaya said at a news conference held to announce the bank's second inflation report. "Given a tight policy stance that focuses on bringing inflation down, inflation is estimated to converge gradually to the 5 percent target," Çetinkaya said. Çetinkaya forecasted year-end inflation for 2018 to be 4.6 percent to 8.2 percent with a mid-point of 6.4 percent.

"Turkey also has received more portfolio inflows recently. Short-term interest rates continued to edge up due to monetary tightening, while the slope of the yield curve reversed and the Turkish lira witnessed lower levels and reduced volatility," he said.

Core inflation increased in the first quarter of 2017, while non-core items, such as unprocessed food, energy and alcohol and tobacco products, provided a significantly larger contribution to inflation, he added.

Çetinkaya said that the upsurge in exports of goods as well as accommodative incentives and measures were likely to help economic recovery strengthen from the second quarter onwards.

"In recent years, sustained fiscal discipline has been one of the key factors in lowering the sensitivity of the Turkish economy to external shocks. Countercyclical fiscal policy has been implemented recently thanks to the space provided by fiscal discipline," he added.

Structural measures would contribute to the coordination of monetary and fiscal policy; thus, supporting macroeconomic stability, Çetinkaya said.