Turkish Central Bank downgrades inflation forecast

Turkish Central Bank downgrades inflation forecast

Inflation is projected to be 13.9% at end-2019, 8.2% at end-2020 and stabilize around 5% in the medium term said Turkish Central Bank Governor Murat Uysal at a briefing on inflation report.

Murat Uysal, the new governor of Turkish Central Bank, announced Wednesday his third inflation report of the year.

Inflation in Turkey is projected to converge gradually to the target under a tight monetary policy stance and strong policy coordination focused on bringing inflation down, stressed head of the central bank.

The report indicated that inflation is projected to be 13.9% at end-2019, 8.2% at end-2020 and stabilize around 5% in the medium term.

Accordingly, inflation is expected to be between 11.5% and 16.3% (with a midpoint of 13.9%) at end-2019 between 5.2% and 11.2% (with a midpoint of 8.2%) at end-2020 with 70 percent probability.

The report included the downward revision in 2019 year-end inflation forecasts by a total of 0.7 points, relative to April Inflation Report, is driven by:

The upward revision in output gap by +0.2 points,

Revisions to assumptions for taxes and administered prices by +0.2 points,

The downward revision to assumptions for Turkish Lira denominated import prices by -0.3 points,

Lower-than-projected inflation at 2019Q2 and improvement in the underlying trend by -0.6 points,

The downward revision in assumptions for food inflation by -0.2 points.

For the upward effects on the 2020 year-end inflation forecasts:

+0.3 points from upward revision in the output gap,

Downward effects on the 2020 year-end inflation forecasts:

-0.2 points from a downward revision to assumptions for Turkish Lira -denominated import prices,

-0.1 points from the improvement in the underlying trend of inflation.

Inflation forecast for 2020 year-end remained unchanged compared to the previous Report, as the downward and upward effects balance out.

Owing to the decline in the inflation expectations following tight monetary policy stance, fall in the country risk premium and favorable macroeconomic developments, currency swap rates across all maturities decreased compared to the previous reporting period.

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