CBRT: Inflation to fall significantly in Sept. due to base effect

Published 20.09.2019 00:14

Turkish inflation will fall significantly in September due to the high base from the previous year, with leading indicators suggesting the slowdown in annual food inflation will continue, the central bank said yesterday.

In the minutes of last week's monetary policy committee meeting, the Central Bank of the Republic of Turkey (CBRT) said leading indicators point to a continued moderate recovery trend in the third quarter.

The bank decreased the benchmark interest rate, the one-week repo rate, by 3.25% to 16.50% last week, a decision that surpassed the median expectation for 275 basis points.

In the face of rising inflation, the CBRT increased the interest rates to 24% in September 2018, from 17.75% at the time. However, in its July meeting, the bank cut the rates massively by 425 basis points to 19.75%. Steps taken in the past year, the downward trend in inflationary pressures, the global appetite for lower interest rates at leading central banks and the ameliorating economic activity in Turkey have all enabled the CBRT to ease its monetary policy.

Consumer prices in Turkey went up by 15.01% in August compared to the same month last year, according to Turkish Statistical Institute (TurkStat) data. August's figure was down from 16.65% in July, beating expectations.

Over the past decade, annual inflation saw its lowest level at 3.99% in March 2011, and it peaked at 25.24% last October.

The bank yesterday said improvement in the inflation outlook continued and that current projections point that year-end inflation may be realized below July Inflation Report forecasts.

In July, the bank cut its year-end inflation forecast for 2019 to 13.9%, down from 14.6% in its previous report. The rate is expected to fluctuate between 11.5% and 16.3% through the end of this year, the bank's Governor Murat Uysal said.

The bank kept inflation forecasts constant for next year and 2021 at 8.2% and 5.4%, respectively.

The country's inflation rate target is 15.9% this year, 9.8% next year, and 6.0% in 2021, under the new economic program announced last September.

The bank yesterday noted that, considering all the factors affecting the inflation outlook, the committee on its last meeting decided to reduce the policy rate by 325 basis points. "At this point, the current monetary policy stance, to a large part, is considered to be consistent with the projected disinflation path," it added. It emphasized that inflation will register a significant fall in September due also to the high base effect. "In August, consumer prices rose by 0.86%, while annual inflation decreased by 1.64 points to 15.01%. The fall in inflation was mainly driven by the core goods and energy groups, while the downtrend in annual food inflation continued. In addition to the stable course of the Turkish lira, improved inflation expectations, commodity prices and domestic demand conditions supported the decline in the annual inflation of core indicators. Against this background, core indicators maintained their mild course. Inflation will register a significant fall in September due also to the high base from the previous year," the bank added.

Share on Facebook Share on Twitter