Turkey’s Central Bank raises year-end inflation forecast to 58%

ANKARA — Turkey's Central Bank increased its year-end annual inflation projection by more than 50%, the bank’s new governor, Hafize Gaye Erkan, said on Thursday.

Speaking at her first press conference after taking office in June, Erkan revised the bank’s year-end annual inflation projection to 58%. The previous forecast stood at 22.3%. Turkey’s first-ever female governor also reiterated the bank’s pledge to continue monetary-tightening policies. 

After Erkan’s appointment in early June, the Central Bank abandoned its unorthodox monetary policy of keeping interest rates low. 

Under Erkan’s leadership, the bank hiked the country’s policy rates by 900 basis points in successive rate hikes in June and July. However, the hikes fell below market expectations that were waiting for more drastic raises. 

Speaking on Thursday, Erkan signaled that the monetary policy shift would continue on a gradual basis. "Until a significant improvement in the inflation outlook is achieved, we will gradually strengthen monetary tightening as and when necessary," she said.

Underpinned by Turkish President Recep Tayyip Erdogan’s unconventional economic belief that higher interest rates cause inflation, Turkey’s Central Bank kept interest rates below 10% despite the rapid devaluation of the Turkish lira and spiraling inflation. 

The country’s annual inflation reached a 24-year high of 85.5% last October before easing to 38.2% in June, largely due to a favorable base effect from the previous period. 

Erdogan’s appointment of Finance Minister Mehmet Simsek and Gaye Erkan at the helm of the Turkish economy after his reelection in May signaled a major U-turn from unconventional economic policies.