Turkey’s Inflation Eases Sharply, But Challenges Remain
Turkey’s annual inflation rate eased significantly in August, falling to 52% from 62% in July, Bloomberg reports, citing data released by the state statistics office on Tuesday.
The decline, which was largely driven by comparisons with last year’s high inflation readings, was slightly better than the 51.9% analysts had predicted.
Despite the sharp drop, the inflation rate remains more than ten times the official target, highlighting the ongoing challenges facing the Turkish economy. The Central Bank of the Republic of Turkey (CBRT) is likely to focus more on monthly inflation, which slowed to 2.47% from 3.23% in July.
The CBRT aims to bring inflation down to 38% by the end of the year, but most economists believe the rate will be closer to 42%, the upper band of the central bank’s forecast range. Selva Demiralp, an economics professor at Koc University, sees year-end inflation reaching 45% and 33% by the end of 2025.
“If the central bank is going to be sincere in achieving the 14% year-end goal by the end of 2025, there needs to be a more significant deceleration and disinflation program,” Demiralp said. “The growth rate needs to slow further.”
The International Monetary Fund (IMF) has urged Turkey to adopt a tighter policy mix, emphasizing the role of fiscal policy in reducing risks and accelerating disinflation.
“Fiscal, monetary, and incomes policies will all need to work together. While there would be a short-term cost to growth from tighter policies, a rapid disinflation is more likely to be sustainable, and would strengthen medium-term growth and financial stability,” the IMF stated in its Article IV report.
The CBRT, at its last policy meeting, kept the benchmark interest rate at 50% for the fifth consecutive month, emphasizing its focus on inflation expectations. The current levels of inflation expectations, which remain higher than officials’ projections for the next 12 months, pose an upside risk to the inflation outlook.
“The current levels of inflation expectations continue to pose an upside risk to the inflation outlook,” the CBRT said in its latest policy minutes.
