The main reason for the rising prices is the devaluation of the lira last year, which was stopped at the end of 2021.
(Photo: dpa)
Ankara The Turkish central bank expects higher inflation given the weak national currency, the lira. Accordingly, consumer prices would rise by an average of 23.2 percent, as the currency watchdogs predicted on Thursday. So far they had assumed 11.8 percent.
The central bank is actually aiming for an inflation rate of five percent, but according to its own forecast it will also clearly miss this target in 2023: then the increase should be 8.2 percent. Inflation has been in the double digits for most of the past five years, eating away at Turkish incomes and savings.
The central bank expects food prices alone to rise by 24.2 percent at the end of the current year. Here, too, the prognosis has been raised. Experts blame the central bank for the development. Despite the drastic devaluation of the national currency, the lira, it gradually lowered its key interest rate from 19.0 to 14.0 percent in the second half of 2021.
The devaluation of the lira has “nothing to do with the interest rate cuts” and would have occurred independently, central bank chief Sahap Kavcioglu defended the controversial approach. “We took care of the exchange rate and, God willing, we will also get inflation under control with this policy.”
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According to most economists, he would have to do the opposite, namely make his own currency more attractive with higher interest rates. The lira has lost about half its value against the dollar over the past year, fueling inflation. Because the country, which is poor in raw materials, has to import more goods than it exports. Imports are often settled in dollars and other currencies.
The weakness of the lira pushed the inflation rate up to 36 percent in December. Most analysts expect it to approach the 50 percent mark in the coming months before falling to around 27 percent by the end of the year. The central bank itself expects the high of 55 percent in May.
President Recep Tayyip Erdogan has long held the unusual view that interest rates cause inflation. Last year he launched a new economic program that prioritizes low interest rates, exports, credit and investment.
More: “There is panic”: Turkish government shuts off electricity to industry in the country.