Turkey’s central bank hiked its year-end annual inflation forecast to 23.2 percent, from 11.8 percent previously, and its chief dismissed the notion that a series of unorthodox interest rate cuts sent inflation soaring and the lira tumbling.
Governor Sahap Kavcioglu, who has been pressured to slash rates by President Recep Tayyip Erdogan, said the bank sets policy based on data when asked at a press conference about its independence.
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The central bank cut its policy rate by 500 basis points to 14 percent since September, setting off a full-blown crisis last month in which the lira touched a record 18.4 versus the dollar before rebounding sharply.
The exchange-rate volatility sent inflation soaring to 36 percent last month and most analysts expect it to approach 50 percent in coming months before easing to about 27 percent by year end, according to a Reuters poll.
But the central bank, which has consistently undershot actual inflation in the last few years, said inflation was heading lower and predicted a mid-point of 23.2 percent for the consumer price index at end-2022.
It also forecast 8.2 percent inflation for end-2023 and a return to its official target of 5 percent a year later.
The lira weakening “has nothing to do with the rate cuts” and would have happened irrespective, said Kavcioglu, whom Erdogan appointed in March of last year.
He added that rising inflation was not completely due to rate cuts. “We took care of the exchange rate, God willing we will take care of inflation too with these policies.”
Erdogan, who has long held the unorthodox view that interest rates cause inflation, launched a new economic program last year that prioritizes low rates, exports, lending and investment.
Inflation has remained mostly in double digits for most of the last five years, eating into the earnings and savings of Turks.
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