The Turkish Central Bank today revised its year-end inflation forecast to 12.1% for 2020, up from 8.9%. The Bank also forecast an inflation rate of 9.4% for 2021.
In the Bank’s 2020-IV Inflation Report of October 28th, 2020, it was stated that “Economic activity, after having contracted sharply in the second quarter of the year due to the effects of the pandemic on domestic and external demand, recorded a marked V-type recovery in the third quarter due to the support of the normalization process and strong credit impulse”. However, it was then noted that the “rapid economic recovery achieved on the back of strong credit impulse has significant repercussions on the external balance and inflation outlook”. In face of inflationary pressures and the weakness of the Turkish lira, the report said that in October, despite keeping the policy interest rate unchanged, the Bank had decided “to keep the tight stance of the monetary and liquidity policies until the inflation outlook displays a significant improvement”.
The report stated that the “ongoing tightening in monetary and liquidity policies will have a positive impact on the external balance and the inflation outlook in the upcoming period”.
The annual inflation rate as of September 2020 was 11.75%. With the Turkish lira depreciating to TL 8.30 to the US dollar this week, the added inflationary pressure that this will bring about will mean that the Bank will find it all but impossible to meet its new inflation target for 2020, or for 2021 for all that matter.