A teller shows banknotes in an exchange office in Ankara, Türkiye, July 20, 2023. (Mustafa Kaya/Handout via Xinhua)
ANKARA, July 27 (Xinhua) -- Türkiye's central bank on Thursday more than doubled its year-end inflation forecast from 22.3 percent to 58 percent, a realistic estimate in line with the new economic teams' "rational" policies, experts said.
"We estimate that inflation will be 58 percent by the end of 2023," newly-appointed governor Hafize Gaye Erkan told reporters in a press conference in the capital city of Ankara to announce the bank's quarterly inflation report.
The central bank's previous governor Sahap Kavcioglu put the year-end inflation at 22.3 percent.
The inflation expectation for the year 2024 was also raised from 8.8 percent to 33 percent. The forecast for 2025 is 15 percent.
Türkiye's centrak bank governor Hafize Gaye Erkan speaks at a press conference in the capital Ankara on July 27, 2023. (Photo by Mustafa Kaya/Xinhua)
Erkan, the first female governor of the bank, said inflation will rise "in the short term" and the impact of the inflation-curbing measures will not be shown until the second quarter of 2024.
Economists welcomed the massive upward revision, saying it shows that the new economic management team that took office after Recep Tayyip Erdogan's re-election in May has adopted a realistic approach to inflation, distancing itself from optimistic projections.
"Increasing the year-end inflation forecast from 22 to 58 percent is a realistic and convincing step. This is positive in terms of credibility" for the Turkish economy, Selva Demiralp, professor of economics at Koc University in Istanbul, said on Twitter.
She added that her year-end inflation estimate is 72 percent.
The current annual inflation rate announced on July 3 by the Statistical Institute is 38.2 percent, down from a 24-year peak of 85.5 percent in October 2022.
Erdogan named former economy chief Mehmet Simsek as his new treasury and finance minister, who was known for his market-friendly policies, and Erkan atop the central bank in early June.
The new team vowed a return to "rational," conventional economic policies following two years of unorthodox moves such as lowering interest rates to tame high inflation which led to the decline of the national currency and a cost-of-living crisis.
People shop at a local market in Ankara, Türkiye, on July 17, 2023. (Photo by Mustafa Kaya/Xinhua)
The new management delivered two consecutive rate hikes in June and July and is expected to continue on this path.
"Until there's a significant improvement in the inflation outlook, we will gradually strengthen monetary tightening as necessary," Erkan said on Thursday.
"It is important that the central bank continues its tightening monetary policy in order to eliminate inflationist concerns and keep inflation under control," Enver Erkan, chief economist at Istanbul's Dinamik Investment Securities, told Xinhua.
This analyst said that the central bank "is aware of the importance of taking measures to combat inflation and stabilize the economy".
The Turkish lira lost a third of its value against the U.S. dollar since the start of the year, which burdened further households grappling with rising prices despite wage and pension hikes.
Faced with a budget deficit caused by increased spending ahead of the May elections and on rebuilding work after the earthquakes in southern Türkiye, the government raised the value-added tax on various household goods earlier this month.
A worker fuels a car at a gas station in Ankara, Türkiye, on July 17, 2023. (Photo by Mustafa Kaya/Xinhua)
The tax on other goods, such as home appliances, was raised from 18 to 20 percent. Gasoline prices have also been significantly hiked.
The continued weakening of the lira and tax hikes are likely to fuel inflation in the second half of the year, in line with the central bank's new projections, according to analysts.
"Many economists already expect inflation to be around 60 percent by the end of the year," Enver Erkan noted. ■
