Turkish inflation accelerated for the sixth consecutive month in March, with weak lira pushing up the cost of imports, making it harder for the country’s new central bank governor to meet President Recep Tayyip Erdogan’s wish to ease monetary policy.
Consumer prices rose 16.19% year on year, in line with the expectations of economists polled by Reuters. The month-over-month increase was 1.08%, with transportation and white goods leading the rise, the national statistics agency said on Monday.
Turkey’s inflation rate has remained in double digits for much of the past three years, leaving central bank governor Sahap Kavcioglu with a dilemma.
Kavcioglu was appointed last month by Erdogan, who often demanded lower borrowing costs to boost economic growth. But lower rates risk fueling inflation and threaten to undermine the value of the lira, analysts say.
“The new depreciating pressure on the local currency highlights the need for the central bank to maintain tight monetary policy,” Enver Erkan, economist at Tera Securities, wrote in a research note after the release of data on the inflation.
“[High] interest is the most useful instrument in terms of price stability, even if it has a slowing effect on the real economy, ”he said.
The numbers make it unlikely that Kavcioglu will cut interest rates at upcoming Monetary Policy Committee meetings this month and in May, and he could even signal that policy will remain tight, Erkan said.
The bank’s next rate-setting meeting will take place on April 15.
The lira has fallen 13% against the dollar since Erdogan sacked Kavcioglu’s hawkish predecessor Naci Agbal in the middle of the night last month, two days after raising rates to 19% in a bid to contain inflation and support the read. .
The Turkish currency has lost more than a fifth of its value against the US dollar over the past year. This has driven up the cost of imports, including intermediate goods that the country’s manufacturers need.
Producer prices jumped 4.13 percent last month and are up 31.2 percent year-over-year, according to the statistics bureau. This suggests that the headline inflation rate will continue to rise as higher production costs are passed on to consumers.
Rising oil prices are also a factor, as Turkey imports almost all of the energy it consumes.
Kavcioglu, an academic and newspaper columnist, is Turkey’s fourth central bank chief in less than two years. He supported Erdogan’s view that high interest promotes inflation, contrary to mainstream economic theory.
However, Kavcioglu has indicated that he will not immediately reverse his predecessor’s policies and has pledged to meet the central bank’s 5% year-end CPI target.
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