Monday , June 27 2022

Update 3 – Turkish inflation hits 25% in October, the highest in the last 15 years


* Inflation remained at 15 years in October

* The central bank's interest rate is 24%, lower than the inflation rate

* Turkey see a negative recording growth next quarter next (adds the second comment analyst, Moody's note)

By Ali Kukukukman and Vajpayee Arkoyon

Turkey's annual inflation rose to 25 percent in October, according to official figures released on Monday, hitting their highest level in 15 years, and stressing the continuing impact of the currency crisis as the broader economy is losing its growth rate.

The consumer price index for the month rose 2.67%, according to the statistics institute of Turkey, higher than the Reuters forecast of 2.0%.

Following the Lira slide, which also hinders inflation, the government has cut its growth forecasts and economists say that Turkey will post negative GDP growth in the next quarter and next year, which will prevent any move by the central bank to walk rates in response to high inflation.

"I think the central bank will loathe the need to raise policy rates again if inflation data continue to disappoint, as this will only cause a deeper recession," said Timothy Ash, strategist at Blue Bay Asset Management.

"They will assume, rightly, that recession deflation will eventually do the trick on inflation, but they need time."

The pound weakened to 5.4390 against the dollar at 0.951 GMT from 5.43 before. The currency recently recovered some losses from the sale-off driven by concerns about the central bank's ability to adequately respond to rising inflation and deteriorating ties with Washington. It is still down about 30% against the US dollar this year.

Producer prices rose by 0.91% in October, an increase of 45.01%. Core inflation rose 24.34 per year.

Inflation in October was due to an annualized increase of 12.74% in the prices of clothing and shoes, and a 4.15% rise in housing prices.

An uncompromising rise

Last month, Turkey's central bank left the interest rate unchanged as it watched the impact of a huge trip in September, and tensions with the United States weakened, helping Lira land. The bank's main interest rate, the repo rate of the week, now stands at 24%.

The rise in inflation in October means the real interest rates of the central bank – the level of price increases once taken into account – has been pushed into negative territory.

Finance Minister Berth Albiraq declared a "full fight" against inflation in October and called on all companies to offer 10 percent discounts on items that affect inflation by the end of the year.

Last week, he also announced a reduction in consumer tax on furniture, Lebanese goods and vehicles, which economists say will raise inflation at the end of the year by about 1 percent.

Tax cuts will increase consumption temporarily, but they are negative credit risk and re-stress selling on the Lira, Moody's rating agency said on Monday.

"These are the shorter term measures they are presenting and I think in order to consistently bring down inflation more, the central bank should take more proactive role," said Per Hammmarlund, chief market strategist at SEB.

Writing by Ali Kokocukman and Azgi Arquyon; Editing by Darren
Butler and Raisa Kasolovsky

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