Baku, Azerbaijan, Oct. 5
By Aygun Badalova - Trend:
The central bank of Turkey will tighten monetary conditions over the next six to nine months, William Jackson, the economist at British economic research and consulting company Capital Economics believes.
"The rise in Turkish inflation to a stronger-than-expected 7.9 percent year over year (y/y) last month provides further evidence that the latest plunge in the lira is hurting the economy," Jackson said in a report obtained by Trend.
Turkish headline CPI inflation came in at 7.9 percent y/y last month, up from 7.1 percent y/y in August. This was the highest rate since May.
The rise in the headline rate was broad-based, according to the report. Food inflation in September came in at 10.7 percent y/y, up from 9.7 percent y/y. Core inflation increased to 8.2 percent y/y, its fastest pace since January.
"All in the all, these data suggest that the weakness of the lira is fuelling higher inflation," Jackson said in a report. He believes that inflation will rise further over the next six months.
"The drop in the lira is likely to continue to feed through into consumer prices. What's more, the drag on inflation from the sharp fall in oil prices will unwind by early next year. This could add perhaps 0.7%-pts to the headline rate by Q1 2016," he said.
Against this backdrop, it will be increasingly difficult for the central bank to resist raising interest rates, analyst believes.
He expects monetary conditions to be tightened over the next three to six months, with interbank interest rates likely to be pushed up by around 200bp.
Turkey's Central Bank adopted a decision in February 2015 to reduce the key interest rate from 7.75 percent to 7.5 percent, which has stayed unchanged since that time.
The official exchange rate for October 5 is 3.0291 TRY/USD.