Turkish inflation continues to rise. In December, the annual CPI rate increased from 61.98 to 64.77 pct, the highest level in over a year. The reading broadly aligned with market expectations and the central bank's latest inflation forecast for the end of 2023.
The month-on-month rise in consumer prices was the smallest in the second half of 2023, accounting for 2.93 pct, down from 3.28 pct in November. The underlying inflation trend improved slightly, and inflation expectations stabilized in the last months. Nonetheless, the root cause of inflationary pressures, i.e. a vicious mix of loose monetary policy, profoundly negative real interest rates, and persistent lira weakness, remains unchanged. Further fiscal stimulus ahead of local elections in March poses a clear upside risk to the central bank's inflation outlook. The government's new medium-term plan envisages fiscal deficits of 6.4% of GDP in 2023 and 2024. Inflation is expected to peak in May at around 73 pct before declining rapidly to 36 pct by the end of 2024.
Since the May presidential elections, interest rates have been drastically raised by 34 percentage points to get a grip on macroeconomic imbalances, cool the inflation, restore credibility destroyed by years of unorthodox policies, and lure back foreign investors. The tightening cycle is ending and should be completed this month with the one-week repo rate at 45 pct.
Consequently, the CBT is set to halt the tightening before the local elections in March. We continue to see upside risks to the central bank's inflation forecast and expect price pressure to abate slower in the year's second half. The CBT's independence and determination to stick to a more orthodox stance will be tested in this context. The lira trades at all-time lows against the US dollar. The USD/TRY rate is drifting up towards the 30.0 mark in an almost linear fashion, with limited volatility due to numerous FX controls and restrictions. A further USD/TRY's move higher towards the 35 mark is Conotoxia fintech's baseline scenario for 2024.
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15 Dec 2023 11:26
US dollar exchange rate with biggest drop, central banks supported NOK, CHF, EUR and GBP
Turkish inflation continues to rise. In December, the annual CPI rate increased from 61.98 to 64.77 pct, the highest level in over a year. The reading broadly aligned with market expectations and the central bank's latest inflation forecast for the end of 2023.
The month-on-month rise in consumer prices was the smallest in the second half of 2023, accounting for 2.93 pct, down from 3.28 pct in November. The underlying inflation trend improved slightly, and inflation expectations stabilized in the last months. Nonetheless, the root cause of inflationary pressures, i.e. a vicious mix of loose monetary policy, profoundly negative real interest rates, and persistent lira weakness, remains unchanged. Further fiscal stimulus ahead of local elections in March poses a clear upside risk to the central bank's inflation outlook. The government's new medium-term plan envisages fiscal deficits of 6.4% of GDP in 2023 and 2024. Inflation is expected to peak in May at around 73 pct before declining rapidly to 36 pct by the end of 2024.
Since the May presidential elections, interest rates have been drastically raised by 34 percentage points to get a grip on macroeconomic imbalances, cool the inflation, restore credibility destroyed by years of unorthodox policies, and lure back foreign investors. The tightening cycle is ending and should be completed this month with the one-week repo rate at 45 pct.
Consequently, the CBT is set to halt the tightening before the local elections in March. We continue to see upside risks to the central bank's inflation forecast and expect price pressure to abate slower in the year's second half. The CBT's independence and determination to stick to a more orthodox stance will be tested in this context. The lira trades at all-time lows against the US dollar. The USD/TRY rate is drifting up towards the 30.0 mark in an almost linear fashion, with limited volatility due to numerous FX controls and restrictions. A further USD/TRY's move higher towards the 35 mark is Conotoxia fintech's baseline scenario for 2024.
See also:
US dollar exchange rate with biggest drop, central banks supported NOK, CHF, EUR and GBP
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