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Inflation Forecast Hiked to 12.2% By Turkey’s Central Bank

As per the periodical inflation report, there has been increasing of 12.2% in the rate of inflation but the Turkish central bank’s new governor. Additionally, the Turkish governor vows to have stringent strategic policies until price burdens recede.

As a measure of the worsening value of the Turkish lira, Turkey’s central bank raised its year-end inflation from 9.4% to 12.2%. The bank’s governor asserted that tight policy would preserve until such time that price deviation from fundamental value continues.

Since Governor Sahap Kavcioglu’s appointment last month, in his first quarterly inflation report he stated the policy rate would be fixed above inflation.  The policy rate, which is currently at 19%, last month, topped 16% and there is anticipation that this is going to increase more.

In his presentation on the first quarterly report, the governor sought to persuade economists that his decisiveness was at par with his predecessor. His predecessor was Naci Agbal who is known as the policy hawk. Kavcioglu also claimed that over the next three years he would bring down the rate of inflation to 5%.

Kavcioglu has urged cuts in the past; however, inflation that increased through imports has stacked pressure on the bank to keep rates high. Kavcioglu had even predicted earlier that before inflation could finally ease out it would reach its peak in April.

According to the governor, the policy rate will remain above anticipate inflation until such time that it meets the target rate.

Turkey has had a weak currency and this has been more so for the last 4 years. Turkey’s consumer price inflation during this time has been double-digit.  With the deprecation of the lira along with other commodity prices, the producer price inflation was pushed above 31% last month.

However, the lira is said to have plunged and markets spooked because President Erdogan intervened and sacked the former governor of the Central Bank. There was a difference of opinion on how the central bank should have been managed. The Turkish President wanted to go a different way. Just as he has the power to appoint a central banker, he has the power to sack the central banker. There was an upheaval as the Turkish President sacked the third governor in just two years. Naci Agbal was praised by investors for his stewardship at the bank, which included presiding over several interest rate rises. These measures were seen as a key part of restoring confidence in the Turkish lira.

While economists believe that Naci Agbal was the right choice and the markets needed him, Kavcioglu policies are yet to show their results. Furthermore, Kavcioglu clarified in the presentation clear guidance was given that stated the policy rate would continue to stay above inflation.

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