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Turkey’s inflation accelerated to its highest level since President Recep Tayyip Erdogan took power two decades ago, challenging a push for lower borrowing costs that’s battered the lira and hit his working class base ahead of next year’s elections.
Consumer price inflation surged to an annual 48.7% last month, the highest since April 2002, leaving the central bank in a tricky position where raising rates will anger Erdogan but cutting them will only add to runaway price increases.
Under pressure from the president, who’s keen to boost growth ahead of the 2023 polls, Turkey’s central bank has slashed its policy rate by 500 basis points to 14%, or negative 35% when adjusted for inflation, the lowest real yield across emerging markets. That’s sent the lira into a tailspin and accelerated the surge in consumer prices.
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Global pressures, including a jump in the cost of gas and other commodities, exacerbated price increases in January and have also cast a pall over the medium-term inflation outlook.
Turkey’s central bank held rates steady in January as prices soared but Erdogan, who espouses the unorthodox view that higher borrowing costs fuel inflation, signaled last week that he had no intention of abandoning his overall policy trajectory.
That’s frustrated investors who have dumped the lira and complained that Turkey’s monetary policy has become unpredictable, driven more by Erdogan’s policy whims than economic fundamentals.
“I think the central bank will be forced to hike, whether they like it or not,” said Cristian Maggio, head of portfolio strategy at TD Securities. “However, I cannot rule out an attempt to ease further before they are forced to U-turn,” he said. “Sure enough CPI at around 50% is a total failure by the central bank.”
The lira, which slid by more than 44% last year, was trading 0.9% lower at 13.5855 per dollar as of 1:11 p.m. in Istanbul.
The sharp price increases—inflation rose 11.1% through last month alone…
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Source : time
