Turkey's inflation seen dropping to about 27% by end of 2022

Already rampant inflation in Turkey will rise further in the coming months before declining to around 27% by the end of the year, a Reuters poll showed on Monday, as forecasts soared after a currency crisis in 2021 sent prices rocketing.

Turkey’s inflation surged to 36% in December after a series of interest rate cuts by the central bank, long sought by President Tayyip Erdogan, prompted the lira to lose 44% of its value against the dollar last year.

The annual consumer price index (CPI) was seen standing at 40% by the end of the first quarter and 39% by mid-year, according to the median estimate in the Jan. 10-14 Reuters poll.

Inflation was seen declining to 26.8% by the end of 2022, and to 15.4% in 2023, in sharp contrast to government expectations that inflation would decline to single digits by mid-2023.

Estimates for inflation at the end of 2022 ranged widely from 17% to as high as 46%.

Despite the government’s recent policy of keeping interest rates low to boost exports and credit, some economists saw the central bank changing direction and hiking its policy rate in the future.

The median estimate for the one-week repo rate was for it to remain unchanged at 14% throughout this year, but seven of the 20 economists polled expected a cut while three predicted an increase – with the top estimate at 25%.

Erdogan has backed aggressive rate cuts to support his new programme that stresses exports and credit – despite soaring inflation and widespread criticism of the policy from economists and opposition lawmakers.

Authorities have recently said Turkey’s biggest economic problem is the chronic current account deficit, largely due to Turkey’s heavy import bill, which they say will improve as a result of the new economic plan.

However, economists still predict the deficit would amount to 2.1% of gross domestic product in 2022 and 2.3% in 2023.

Turkey’s GDP growth was seen at 10.1% in 2021 as the economy rebounded from a downturn due to the pandemic, but the pace of expansion was seen dropping to 3.5% in 2022 and standing at 4.0% in 2023.