Politics

Inflation expectations in Türkiye drop to one-year low


Inflation expectations in Türkiye have fallen to their lowest level in a year, a survey by the central bank showed on Friday, as pressures appear to be easing as the country enters a disinflation trend.

The expectations for inflation 12 months from now fell to 31.8% in June, down from 33.2% in the previous Central Bank of the Republic of Türkiye’ (CBRT) survey of market participants.

That marks the lowest expectations level since June 2023, just before the authorities started to reverse loose policy following general and presidential elections.

The survey intends to monitor the expectations of decision-makers and experts in the financial and real sectors regarding various economic variables.

Türkiye has eagerly sought to rein in growth in price gains, which remains the biggest challenge for authorities that have delivered aggressive monetary tightening to cool domestic demand.

Inflation reached an annual 75% in May, which is said to mark the peak before a series of interest rate hikes and a relatively stable Turkish lira bring relief.

Treasury and Finance Minister Mehmet Şimşek welcomed the decline in expectations, saying that it would help to accelerate the disinflation process.

“The confidence and predictability that have been increasing with our (medium-term economic) program are also reflected in inflation expectations,” Şimşek wrote on social media platform X.

“As expectations converge toward our targets, our disinflation process will further accelerate.”

Vice President Cevdet Yılmaz echoed Şimşek’s view and said expectations were converging toward the government’s forecast path, something that authorities had sought to ensure.

Expectations for the year-end consumer price index (CPI) fell to 43.5% from 43.6% in the previous survey.

Last month, the central bank raised its year-end forecast to 38% as the monetary tightening weighs.

Since June last year, the CBRT has gradually lifted its benchmark policy rate to 50% from 8.5% and has said it would “do whatever it takes” to prevent the inflation outlook from deteriorating.

Despite the declines in expectations, the central bank is forecast to leave its one-week repo rate unchanged for the third consecutive month when its Monetary Policy Committee (MPC) meets on June 27.

Inflation is seen dropping to 20.3% two years from now, the CBRT survey showed, down from 21.3%.

Yılmaz reiterated the government’s goal to reduce it to below 20% by 2025 and to achieve single-digit rates by 2026.

“We will achieve results not only through monetary policy but also with fiscal policy and structural reforms that boost productivity,” said the vice president.

“The disinflation period, beginning in the second half of 2024, will also contribute to our goal of achieving stable growth and permanently increasing social welfare.”

The survey also sees lira trading at 37.75 against the U.S. dollar at the end of the year, compared to 38.78 in the previous survey.

The currency is down more than 8% this year but has held mostly steady since March, helping underpin the expected inflation relief.

It traded at 32.70 to the dollar as of 5.55 p.m. local time in Istanbul.

Expectations for the exchange rate 12 months from now fell to 41.41 from 41.80, the survey showed.

Growth expectations remained unchanged.

The survey showed that expectations for gross domestic product (GDP) growth in 2024 and 2025 were 3.3% and 3.7%, respectively.



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