Inflation in Turkey over 16% tested for new central bank chief

© Reuters. FILE PHOTO: The new governor of Turkey’s Central Bank, Kavcioglu, in Ankara

ISTANBUL (Reuters) – Turkey’s annual inflation rate surged above 16% in March for the first time since mid-2019. The data showed Monday that the central bank’s new governor, Sahap Kavcioglu, was pressured to maintain tight policies following his surprise appointment.

Consumer prices were up 16.19% year over year, up 16.11% in a Reuters poll and 15.61% in February. Inflation remains well above an official target of 5% and has been in double digits for the most part for the past four years.

Monthly CPI inflation was 1.08%, according to the Turkish Statistical Office, compared to a Reuters poll forecast of 1.04%.

The former governor of the central bank, Naci Agbal, raised the key interest rate from 10.25% to 19%. But it was ousted on March 20 – after just four months of use and two days after a final rate hike – causing the lira to drop 12% to near record lows.

President Tayyip Erdogan abruptly ousted four bank chiefs in less than two years, hurting Turkey’s monetary credibility and contributing to the long-term decline in the currency, which in turn has driven headline inflation through imports.

Kavcioglu has criticized tight policies in the past, including Erdogan’s unorthodox claim that high interest rates cause inflation. Still, he has been telling investors and bankers over the past few weeks that high inflation will keep interest rates high.

The producer price index rose by 4.13% in March compared to the previous month, which corresponds to an annual increase of 31.2%.

The monthly surge in CPI price was supported by demand in health, education and hospitality groups, including restaurants, after coronavirus measures were eased.

The annual increase was due to higher energy and import prices, which increased transport-related prices by almost 25%.

According to a forecast from February, the central bank expected inflation of no more than 17% in March and a little more in April. Analysts predict it will rise through April, when Goldman Sachs (NYSE 🙂 expects a high of 18%.

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